After worst year on record, Canadian economy enters 2021 with double digit growth

·3 min read

OTTAWA — The Canadian economy sprinted to the finish line of 2020 with nearly double-digit growth in the fourth quarter, ending its worst year on record on a strong note with the momentum drifting into the start of 2021.

Statistics Canada said the economy grew at an annualized rate of 9.6 per cent over the last three months of 2020, down from an annualized growth rate of 40.6 per cent in the third quarter when the country fully emerged from severe lockdowns in the spring.

However, despite the better-than-expected result for the quarter as a whole, December eked out a 0.1 per cent increase, which followed a 0.8 per cent increase in November.

Looking ahead to January, Statistics Canada said its early estimate was for growth in the economy of 0.5 per cent.

"Lots of small businesses — your local barbers, your local restaurant or stores — may have had to shut down through the restrictions, but a lot of other areas did manage to keep grinding through," said BMO chief economist Douglas Porter.

"The sectors that did get closed down in the second wave, when they're able to open up, we think the economy will have a big step up, and then we'll have another, even bigger step up when the vast majority of the population is vaccinated."

CIBC chief economist Avery Shenfeld wrote in a note that the early January figure should set aside fears of an outright downturn in the first quarter of 2021.

The COVID-19 pandemic was going to trip up the economy last year, as it shuttered businesses and led to millions out of work. The question was how bad would it be.

The answer the statistics agency provided Tuesday was that real gross domestic product shrank 5.4 per cent, the steepest annual decline since comparable data was first recorded in 1961.

The drop for the year was due to the shutdown of large swaths of the economy in March and April during the first wave of the pandemic that crushed the economy.

Since then, economic activity has slowly and steadily grown.

Federal spending has also cushioned the blow. Statistics Canada reported on Monday that government aid has more than made up for losses in salaries and wages, particularly for low-income households.

Savings skyrocketed: RBC senior economist Nathan Janzen said households accumulated $212 billion in savings last year, about $184 billion above pre-shock trends, which could give a jolt to the economy as the year rolls on.

"Once containment measures ease, there is a lot of pent-up demand out there for spending on things like travel and hospitality services," Janzen said.

Experts say Tuesday's GDP figures likely won't change federal spending plans the Liberals are set to outline in the coming weeks as part of a budget the government has said would include up to $100 billion in stimulus measures over a three-year period.

The Liberals are hearing a laundry list of ideas to include in their budget to help manage through the rest of the pandemic, and aid in a recovery.

Trevin Stratton, chief economist at the Canadian Chamber of Commerce, said support should be targeted in the medium-term to the hardest-hit businesses suffering under a debt load that is fast becoming unsustainable.

Goldy Hyder, president of the Business Council of Canada, wrote in an open letter to Finance Minister Chrystia Freeland that the government should invest in skills training, trade-enhancing infrastructure and research and develop to raise productivity.

This report by The Canadian Press was first published March 2, 2021.

Jordan Press and Craig Wong, The Canadian Press