Statistics Canada says the economy posted its steepest decline on record in the second quarter as the COVID-19 pandemic forced the closure of non-essential businesses and slowed the economy to a crawl.
The agency says real gross domestic product contracted at an annualized rate of 38.7 per cent for the three-month period, the worst showing since the start of 2009 at the height of the global financial crisis.
Economists had expected a contraction in the quarter at an annualized rate of 39.6 per cent, according to financial markets data firm Refinitiv.
Almost every single component of the economy used to calculate GDP was at its lowest point over April, May and June – driven largely by widespread lockdowns in April.
Economic output rebounded in May by 4.8 per cent, and the agency says June posted an increase of 6.5 per cent.
The agency’s preliminary estimate for July indicates a three-per-cent increase in real GDP.
The second quarter of 2020 was largely expected to be the worst three-month stretch for the economy this year before the country begins what is expected to be a long, bumpy road to a recovery.
Even with the gains in June, economic output is about nine per cent below pre-pandemic levels, Statistics Canada says.
On Thursday, Bank of Canada governor Tiff Macklem told an international gathering of central bankers that not all small and medium-sized businesses are going to be able to reopen even as restrictions to contain COVID-19 are rolled back.
That will be especially the case in sectors such as restaurants and hospitality, where people are in close proximity.
“We are seeing now some very impressive rebound numbers as the economy reopens,” Macklem said on a virtual panel hosted by the Federal Reserve Bank of Kansas City.
“That’s a really good thing, but not all parts of the economy are going to be able to reopen for some time, and so we expect that after this first phase, it’s going to be a pretty long, bumpy phase.”
The record decline in output over the last quarter, which was the worst posting for the economy over six decades of comparable data, was fuelled by record drops in spending as businesses stayed closed, Canadians ordered to stay home and millions out of work.
Household spending on goods was down by 8.4 per cent, and down 16.7 per cent for services.
Business investment fell 16.2 per cent, which Statistics Canada says is a result of plant closures, low oil prices and heightened economic uncertainty.
Employee compensation fell by 8.9 per cent, the steepest drop ever recorded, as workers were laid off, furloughed, or had their hours slashed.
Federal emergency aid, particularly through the Canada Emergency Response Benefit, more than offset that drop, the agency says, noting a 10.8 per cent increase in household disposable income.
The Liberals are now proposing a $37 billion income-support package of benefits and changes to employment insurance when the CERB winds down starting next month, which will add to the $343 billion record deficit.
On Thursday, credit rating agency Fitch Ratings said the pandemic has taken “a permanent toll” on economic growth potential in Canada, and dropped growth expectations to around one per cent.
The agency said government spending will remain high while economic activity takes years to recover, and warned it may have to further downgrade the country’s credit rating if deficits and debts weren’t brought under control.