Canada economy grows through November, but fresh COVID-19 shutdowns set to weigh

By Julie Gordon

OTTAWA (Reuters) -The Canadian economy continued to outpace expectations in October, with a gain also expected in November despite the COVID-19 resurgence and fresh restrictions, data from Statistics Canada showed on Wednesday, though economists warned a drop back was still coming.

Canada's real GDP rose 0.4% in October, beating analyst estimates of a 0.3% gain, with a 0.4% gain also expected in November, according to Statscan's preliminary estimate. Still, economic activity remains about 4% below its pre-pandemic level.

The Canadian dollar was 0.4% higher at 1.2860 to the greenback, or 77.76 U.S. cents, after the data.

The growth in October and November will likely ensure an overall gain in the fourth quarter, economists said, but added that December will be weaker and post-holiday lockdowns will weigh on economic activity in the new year.

"The further restrictions imposed in December, including the 'circuit-breaker' lockdowns that are set to come into effect at the end of this week in Ontario and Quebec mean GDP is likely to drop back this month and again in January," Stephen Brown, Senior Canada Economist at Capital Economics, said in a note.

Ontario, Canada's most populous province, will begin a partial shutdown on Dec. 26 that will last up to four weeks, depending on the region. Quebec is also imposing a two-week shutdown starting on Christmas day.

Going forward, virus spread and efforts to contain it are expected to weigh on economic activity, said economists, even as vaccinations buoy hopes for a strong recovery starting in the second quarter of 2021.

"The beginning of vaccine roll-out has brightened the light at the end of the tunnel for pandemic-weary households and businesses. But there are clearly still risks," said Nathan Janzen, senior economist at RBC Economics, in a note.

The goods-producing sector posted a 0.1% increase in October, while the service-producing sector grew by 0.5% as sharp declines in accommodations and food services were outweighed by strength in most other services.

(Reporting by Julie Gordon in Ottawa, additional reporting by Dale Smith and Fergal Smith; Editing by Nick Macfie and Louise Heavens)