The economy rebounded strongly in the third quarter of the year, having taken a step back in the previous three months, which may provide a glimpse of what to look forward to Canadians if concerns over COVID-19 continue to fade and they start spending again as before the pandemic.
The Canadian economy grew at an annualized rate of 5.4% in the third quarter ended in late September, as restrictions related to COVID-19 eased and household spending increased, Statistics said Tuesday. Canada. The rebound followed a 0.8% contraction for the second quarter – according to revised data from Statistics Canada, which previously indicated the decline was 0.3% for the months of April to June.
The quarterly growth in household spending was one of the largest on record. Consumers spent their money in restaurants, bars, hotels and air travel – the latter jumped 181.9% as more and more travelers took to the skies.
To offset these skyrocketing growth, business investment collapsed and consumer spending on goods like motor vehicles declined. TD Bank economist Sri Thanabalasingam pointed out that real GDP growth could have been even stronger in the third quarter without the problems in the global supply chain.
But the celebrations were quickly dampened by severe flooding in British Columbia and concerns about a new variant of the virus causing COVID-19, possibly more transmissible.
CIBC chief economist Avery Shenfled noted that the Omicron variant, a possible tightening of restrictions and the need for vaccine boosters could all affect the next stage of economic recovery. “A summer lull in COVID fears has convinced Canadians to party, and their spending spree will have been fun during that time,” he wrote in a note, “but we are facing new concerns whether a more vaccine resistant variant could delay the time frame for further growth. “
Statistics Canada said the third quarter ended with moderate economic growth of 0.1% for September, as strong gains in service industries were offset by declines in manufacturing. This sector has been slowed in part by the global semiconductor shortage.
Preliminary data from the federal agency also suggests that the economy grew 0.8% in October, to start the last quarter of the year, thanks to the manufacturing sector. Statistics Canada added that with this estimate, total economic activity was about 0.5% below its pre-pandemic level, recorded in February 2020.
Stephen Brown, senior Canadian economist at Capital Economics, estimated that this deficit should be closed by the end of this year or early next year. He also noted that the trajectory of the economy should convince the Bank of Canada to raise its key interest rate by mid-2022. “Certainly we’re coming to the final stages of a recovery here and starting to think about it. tighter (monetary) policy, ”said Brown.
The federal government has already tightened its purse strings for the pandemic. In October, Justin Trudeau’s Liberals ended broad benefits for workers and businesses in favor of more targeted support, outlined in a bill currently before the House of Commons. The Parliamentary Budget Officer (PBO) estimated Tuesday that more targeted rent assistance for businesses still in difficulty would bring the overall price of this supplement to 8.3 billion.
In two other reports, the PBO estimated that the cost of extending the Canadian Economic Stimulus Sickness Benefit through May would cost $ 373.8 million and $ 554 million to add additional weeks of eligibility to the Canadian Health Benefit. economic recovery for family caregivers.
Statistics Canada pointed out that government transfers fell in the third quarter, as employee compensation rose 2.9%, one of the biggest increases in the past two decades.
The additional spending outstripped growth in disposable income, pushing the savings rate down to 11% from 14% in the second quarter. Despite everything, the savings rate is still well above its pre-pandemic levels. “Households are well prepared to face the potential challenges ahead, and there is still plenty of gasoline in the tank to fuel a possible return to the service sector,” wrote Douglas Porter, chief economist at the Bank. from Montreal.