Wow. If you are not sitting, please take a chair.
Today, Statistics Canada released a preliminary estimate of GDP growth during March 2020. This is the first time the statistical agency has provided an advance reading for real GDP and reflects its commendable efforts of providing data as soon as possible.
According to the preliminary numbers, the economy contracted by 9 percent just in the month of March. This is the largest one-month decline since the series started in 1961. Given that estimate, we now have an early reading for the first quarter of 2020. According to these numbers, real GDP fell by approximately 10 percent annualized. This is an enormous decline.
However, the data only captures the decline in the first half of the month, and we know much of a lockdown came later in the month. Allowing for this, we believe that Canada is on track to record a second quarter decline in GDP in excess of 50 percent annualized. That is not a typo, nor are we missing a decimal point.
Today’s release also provided an early picture of the impact by industry in March. Not surprisingly, the largest impact was in travel and tourism related industries such as restaurants and accommodation. There were also large declines in retail and entertainment.
The health sector, food distribution, and online retailing all experienced growth.
The oil and gas sector saw little impact in production volumes. However, this is likely to change in April as storage capacity becomes a problem and companies begin to reduce production in response to falling world demand for oil.
As terrible as these numbers are, I want to stress that they should not be that surprising. We all knew that the lockdown was going to cause a massive drop in economic activity. This helps to explain why financial markets took the news in relative stride. The TSX only fell by 1.5 percent in the wake of the numbers. Indeed, the focus is increasingly on the timing of the recovery. Governments are thinking about when, and if so, how to reopen the economy.
A key contributor to the economic recovery is the massive monetary and fiscal stimulus that has been deployed. And, today’s Bank of Canada decision brought some additional financial support. Although the Bank of Canada left the overnight rate unchanged at 0.25 percent, as expected, it announced a new Provincial Bond Purchase Program of up to $50 billion and a new Corporate Bond Purchase Program of $10 billion in investment grade corporate bonds.
The Bank of Canada also released its April 2020 Monetary Policy Report today. Due to the high degree of uncertainty, the MPR deviated from the usual format, forgoing the base case forecast, which typically forms the core of the report. The Bank also delayed the updating of its potential output and neutral policy rate projections until October. Instead, the Bank has opted for “illustrative scenarios,” which present a range of possibilities that may play out, depending on the “path of the virus and the length and breadth of the containment efforts.” The Bank anticipates that the economy has contracted by between –3.9% and –11.5% in the first quarter. The range of estimates for second quarter growth is between 41% and 75%, according to the MPR, highlighting the uncertainty.
Refinements to the federal emergency benefits under CERB were also announced today: allowing people to earn up to $1,000 per month while collecting the CERB; extending the CERB to seasonal workers who have exhausted their EI regular benefits and are unable to undertake their usual seasonal work as a result of the COVID-19 outbreak; and extending the CERB to workers who recently exhausted their EI regular benefits and are unable to find a job or return to work because of COVID-19.
In recognition that essential workers’ salaries are often less or similar than what they would receive from the CERB, the government will work with provinces and territories through a new transfer to cost-share a temporary top-up to the salaries of workers deemed essential in the fight against COVID-19, who make less than $2,500 a month.
