(Disponible en français : Bilan semestriel de l’économie canadienne : les premier et deuxième trimestres de 2020)
This HillNote highlights key trends of the Canadian economy in the first and second quarters of 2020. Over that period, Canadian real gross domestic product (GDP) experienced a double-digit decline due to the COVID-19 pandemic. The unemployment rate increased by 6.7 percentage points between the end of the fourth quarter of 2019 and the end of the second quarter of 2020.
Real Gross Domestic Product Growth
Figure 1 shows that the non-annualized real GDP growth rate declined by 2.1% in the first quarter of 2020 and 11.5% in the second quarter of 2020. This reduction in economic activity is mostly due to Canadians’ social distancing efforts to contain the spread of COVID-19.
Figure 1 – Non-Annualized Real Gross Domestic Product Growth Rates, Canada, Third Quarter of 2015 to Second Quarter of 2020 (%)
Note: Real gross domestic product (GDP) at market prices (measured in contributions to percentage change, non-annualized) was calculated by Statistics Canada and is based on the quarterly average of monthly data.
Source: Figure prepared by the authors using data that is adjusted for inflation and seasonal fluctuations obtained from Statistics Canada, Table 36-10-0104-01, “Gross domestic product, expenditure-based, quarterly, Canada (dollars x 1,000,000),” accessed 29 September 2020.
Real Gross Domestic Product Components
As shown in Figure 2, the main factor that led to the slowing of real GDP growth in the first and second quarters of 2020 was a decrease in household consumption, which removed 1.8 percentage points from real GDP growth in the first quarter and 7.5 percentage points in the second quarter. In addition, a decrease in exports removed 0.7 and 5.5 percentage points from real GDP growth in these two quarters, respectively.
Figure 2 – Non-Annualized Points of Percentage Contributions to Real Gross Domestic Product Growth, By Component, Canada, Third Quarter of 2019 to Second Quarter of 2020
Note: Household consumption includes consumption by non-profit institutions, and business investment includes investment by such institutions.
Source: Figure prepared by the authors using data that is adjusted for inflation and seasonal fluctuations obtained from Statistics Canada, Table 36-10-0104-01, “Gross domestic product, expenditure-based, quarterly, Canada (dollars x 1,000,000),” accessed 16 October 2020.
Inflation
Figure 3 shows the evolution of Consumer Price Index (CPI) inflation in terms of average quarterly data. Between the third quarter of 2015 and the first quarter of 2020, CPI inflation fluctuated within the Bank of Canada’s inflation target range of 1% to 3%. The CPI inflation rate in the second quarter of 2020 was 0%, down from 1.8% in the first quarter of 2020.
However, the Governor of the Bank of Canada acknowledged that the CPI is not accurately reflecting the current inflationary experience of Canadians because their spending patterns have changed significantly since the beginning of the COVID-19 pandemic. The Bank of Canada is working with Statistics Canada to evaluate the impact of these changes on inflation.
Figure 3 – Year-Over-Year Change in Consumer Price Index Inflation and the
Bank of Canada’s Inflation Target Range, Third Quarter of 2015 to Second Quarter of 2020 (%)
Note: The Consumer Price Index inflation rate calculations are based on average quarterly data.
Source: Figure prepared by the authors using data obtained from Bank of Canada, Historical Data – Inflation (year-over-year percentage change), accessed 29 September 2020.
Employment
Total employment decreased by 8.9% over the December 2019 to June 2020 period. The three sectors with the largest decreases in employment were accommodation and food services (-34.1%); other services (-15.6%); and information, culture and recreation (-15.4%). In absolute terms, the three sectors with the largest decreases in employment were accommodation and food services (-424,900 jobs); wholesale and retail trade (-222,600 jobs); and construction (-151,000 jobs). The utilities sector is the only one that experienced an increase in employment over that period (0.7% or 1,000 jobs).
Figure 4 – Variation in Employment, by Sector, Canada, December 2019 to June 2020 (%)
Note: Other services include the following services: repair and maintenance; personal and laundry services; religious, grant-making, civic, and professional and similar organizations; and services to private households.
Source: Figure prepared by the authors using seasonally adjusted data obtained from Statistics Canada, Table 14-10-0355-01, “Employment by industry, monthly, seasonally adjusted and unadjusted, and trend-cycle, last 5 months (x 1,000),” accessed 21 September 2020.
Unemployment Rates by Age and Sex
At the end of the second quarter of 2020, the overall unemployment rate stood at 12.3%, which represented an increase of 6.7 percentage points compared to the end of the fourth quarter of 2019.
Those aged between 15 to 24 experienced the most significant increase in unemployment, an increase of 15.5 percentage points. Individuals aged between 25 and 54 experienced an increase of 5.5 percentage points in unemployment, while those aged 55 and over experienced an increase of 5.1 percentage points in unemployment.
The increase in unemployment was larger for women in all age groups, especially for women aged 15 to 24. Their unemployment rate reached 28.2% compared to 27.8% for the men of that age group. This ended a long-term trend of higher unemployment among men.
Figure 5 – Unemployment Rates in Canada by Age Group and Sex, Canada, First Quarter 2020 to Second Quarter 2020 (%)
Source: Figure prepared by the authors using seasonally adjusted data obtained from Statistics Canada, Table 14-10-0287-01, “Labour force characteristics, monthly, seasonally adjusted and trend-cycle, last 5 months,” accessed 29 September 2020.
Exchange Rates
Over the December 2019 to June 2020 period, the value of the Japanese yen and euro both increased by 4.2% relative to the value of the Canadian dollar, while the relative value of the U.S. dollar and Chinese renminbi increased by 2.9% and 1.9%, respectively. The value of the U.K. pound sterling relative to the value of the Canadian dollar decreased by 1.7% over the same period.
Figure 6 – Variation of Selected Exchange Rates, December 2019 to June 2020 (%)
Note: The exchange rate represents the amount of Canadian dollars needed to purchase one unit of foreign currency. For example, an increase of 5% in the U.S. exchange rate would represent an increase of 5% in the value of the U.S. dollar relative to the value of the Canadian dollar.
Source: Figure prepared by the authors using data obtained from Statistics Canada, Table 33-10-0163-01, “Monthly average foreign exchange rates in Canadian dollars, Bank of Canada,” accessed 21 September 2020.
Authors: Andrew Barton and Michaël Lambert-Racine, Library of Parliament
Categories: Economics and finance