The Canadian economy grew 4.5% in May, following two months of devastating declines brought on by economic shutdowns to help contain the COVID-19 pandemic. The growth in May reflects some Provincial measures to gradually reopen, allowing some business activity to resume. While this represents an incredible monthly rebound in growth, it is following two months of unprecedented declines. The May increases only partially offset weak activity in March and April, with economic activity remaining 15% below February pre-pandemic levels.
Preliminary estimates for June put Canadian real GDP growth at 5%, which means that Canada could be facing a -12% decline (-40% annualized) for the second quarter of 2020. This is almost bang on our Deloitte Quarterly Forecast estimate of 39.8% in our last publication.
These preliminary estimates are partially based on increased output numbers across several industrial sectors, including Manufacturing, Retail and wholesale trade, Construction, Transportation, Accommodation and food services, and the Public sector.
Both goods and services sectors grew in May, with the goods-sector growing by 8% and services growing by 3.4% compared to April. The majority of industrial sectors grew, with 17 out of 20 sectors posting increases. The three sectors that posted the highest month-to-month gains were Accommodation and food services (24.2%), Construction (17.6%), and Retail trade (16.6%). The three sectors that did not see growth in May were Arts, entertainment, and recreation (-2.9%), Public administration (-1.8%), and Management of companies and enterprises (-0.1%).
Construction's growth of 17.6% in May, following a -22.8% decline in April, is largely attributed to the easing of restrictions, allowing construction activities to gradually resume in May. Ontario and Quebec contributed the most to the sector's growth in May, leading it to be the largest increase in the sector's growth on record. Compared to April, Residential construction grew 20.4 percent, non-residential construction grew 56.7%, and Repairs grew 18.9% in May.
Retail trade's growth of 16.6% represents the largest monthly increase since the beginning of the series, with 11 of 12 subsectors reporting growth in May. Motor vehicle and parts dealers contributed the most to the growth, with a 68.6% increase in May. Re-openings of stores led to General merchandise stores to reach pre-pandemic levels, posting 19.8 percent growth. Other subsectors to bounce back included Clothing and clothing accessories (+94.8%), as well as sporting goods, hobby, book, and music stores (+98.2%). This was anticipated given the strong rebound in the monthly retail data which is showing that the aggregate level of retail activity may have fully recovered in the summer, but with the composition of spending very different than pre-COVID-19.
While Accommodation and food services posted a 24.2% growth in May, this sector is still recovering from a significant decline in April of -45.1%. The sector experienced growth this month, largely due to the easing of COVID-19 related restrictions to dining rooms and patios reopening in certain parts of the country. Even with this increase in May, the sector's growth compared to this month last year was -57.4%, pointing to how much more growth the sector will need to fully recover.
These numbers our consistent with our recent economic projections. Overall, we think the Canadian economy will decline by just over 7 percent this year. But, this annual number masks the strong growth in the second half of this year and the continued expansion in 2021.
There are still many risks to the recovery and it will be essential to think about various scenarios. There is the risk of a second wave. There is the risk that the US will have a delayed and chaotic recovery. Nevertheless, as the Canadian economy is now in the recovery stage of the crisis, it is time for business leaders and governments to consider how to thrive in the new reality.
Craig Alexander is the first Chief Economist at Deloitte Canada. He has over twenty years of experience in the private sector as a senior executive and leading economist in applied economics and forecasting. He performed macroeconomic research, regional and sector analysis, and fiscal market forecasting and modelling. Craig is a passionate public speaker and holds a graduate degree in Economics from the University of Toronto.