Biannual Update on the Canadian Economy: Third and Fourth Quarters of 2020

Reading Time: 5 minutes

Disponible en français.

This HillNote highlights key trends of the Canadian economy in the third and fourth quarters of 2020. Following the onset of the COVID-19 pandemic, Canadian real gross domestic product (GDP) experienced a rebound in the second half of 2020. However, during the fourth quarter of 2020, lockdown measures to limit the spread of COVID-19 moderated economic growth.

Real Gross Domestic Product Growth

Figure 1 shows that the non-annualized real GDP growth rate rose by 8.9% in the third quarter of 2020 and 2.3% in the fourth quarter of 2020. The Bank of Canada indicated that the pattern of decline and rebound is anticipated to be less severe in the first quarter of 2021 than it was during the initial COVID-19 outbreak in 2020.

Figure 1 – Non-Annualized Real Gross Domestic Product Growth Rates, Canada, First Quarter of 2016 to Fourth Quarter of 2020 (%)

Figure 1 shows the non-annualized growth in real gross domestic product on a quarterly basis from the first quarter of 2016 until the fourth quarter of 2020. Over this period, the highest quarterly growth rate occurred in the third quarter of 2020 at 8.9%, while the lowest quarterly growth rate occurred in the second quarter of 2020 at -11.3%. Real gross domestic product rose by 2.3% in the fourth 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 3 March 2021.

Real Gross Domestic Product Components

The main factors that led to the increase of real GDP growth in the third quarter of 2020 were rises in household consumption, exports and business investment, as shown in Figure 2. These factors added 7.3, 4.0 and 2.9 percentage points to real GDP growth, respectively.

In the fourth quarter of 2020, increases in investment in inventories, business investment and government spending added 1.8, 0.5 and 0.4 percentage points to real GDP growth, respectively.

Figure 2 – Non-Annualized Points of Percentage Contributions to Real Gross Domestic Product Growth, By Component, Canada, First Quarter of 2020 to Fourth Quarter of 2020 (%)

Figure 2 shows the non-annualized percentage change contributions to gross domestic product segmented by gross domestic product components for the four quarters of 2020. The contribution of household consumption to real gross domestic product was -1.0% in the first quarter of 2020, -8.3% in the second quarter of 2020, 7.3% in the third quarter of 2020 and 0.0% in the fourth quarter of 2020. The contribution of government spending was -0.1% in the first quarter of 2020, -1.1% in the second quarter of 2020, 1.3% in the third quarter of 2020 and 0.4% in the fourth quarter of 2020. The contribution of business investment was -0.2% in the first quarter of 2020, -3.0% in the second quarter of 2020, 2.9% in the third quarter of 2020 and 0.5% in the fourth quarter of 2020. The contribution of investment in inventories was -0.5% in the first quarter of 2020, -1.4% in the second quarter of 2020, -0.4% in the third quarter of 2020 and 1.8% in the fourth quarter of 2020. The contribution of exports was -0.8% in the first quarter of 2020, -5.2% in the second quarter of 2020, 4.0% in the third quarter of 2020 and 0.4% in the fourth quarter of 2020. The contribution of imports was 0.7% in the first quarter of 2020, 7.6% in the second quarter of 2020, -6.1% in the third quarter of 2020 and -0.8% in the fourth 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 3 March 2021.

Inflation

Figure 3 shows the evolution of Consumer Price Index (CPI) inflation in terms of average quarterly data. Between the first quarter of 2016 and the first quarter of 2020, CPI inflation fluctuated within the Bank of Canada’s inflation target range of 1% to 3%.

However, the CPI Inflation rate has remained below the lower limit of the target range since the second quarter of 2020. The CPI inflation rate in the fourth quarter of 2020 was 0.8%, up from 0.2% in the third quarter of 2020. The Governor of the Bank of Canada stated that inflation is expected to fall again and then gradually move back up to the 2% target in 2023.

Figure 3 – Year-Over-Year Change in Consumer Price Index Inflation and the Bank of Canada’s Inflation Target Range, First Quarter of 2016 to Fourth Quarter of 2020 (%)

Figure 3 shows the evolution of Consumer Price Index (CPI) inflation in terms of average quarterly data from the first quarter of 2016 until the fourth quarter of 2020. The CPI inflation rate in the fourth quarter of 2020 was 0.8%, up from 0.2% in the third quarter of 2020. Between the first quarter of 2016 and the fourth quarter of 2020, the highest rate of inflation occurred in the third quarter of 2018 at 2.7%, while the lowest rate of inflation occurred in the second quarter of 2020 at 0%.

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,Inflation: Definitions, Graphs, Data,” accessed 3 March 2021; and Bank of Canada, “Summary of Key Monetary Policy Variables,” accessed 3 March 2021.

Employment

Total employment increased by 6.3% over the June 2020 to December 2020 period. The three sectors with the largest increases in employment were educational services (11.1%); professional, scientific and technical services (10.7%); and accommodation and food services (10.4%).

In absolute terms, the three sectors with the largest increases in employment were wholesale and retail trade (193,800 jobs); professional, scientific and technical services (154,900 jobs); and educational services (141,400 jobs). The business, building and other support services sector and the agriculture sector are the only ones that experienced a decrease in employment over that period (-0.9% or 6,300 jobs and -0.04% or 100 jobs, respectively).

Figure 4 – Variation in Employment, by Sector, Canada, June 2020 to December 2020 (%)

Figure 4 shows the evolution of employment across all sectors between June 2020 and December 2020. Overall, employment grew by 6.3% across all sectors during that period. The five sectors that experienced the largest increases were educational services at 11.1%; professional, scientific and technical services at 10.7%; accommodation and food services at 10.4%; forestry, fishing, mining, quarrying and oil and gas at 8.6% and other services at 8.4%. The business, building and other support services, and agriculture sectors are the only ones that experienced a decrease in employment over that period, at -0.9% and -0.04%, respectively.

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 3 March 2021.

Annual Unemployment Rates by Age Group, Sex and Indigenous Status

The Canadian unemployment rate for the total population was 9.6% in 2020. This represented a 3.8 percentage points increase compared to 2019.

In 2020, the unemployment rate differed significantly by age group, sex and Indigenous status. For example, Indigenous youth aged 15 to 24 experienced higher levels of unemployment, at 22.2%, relative to the non-Indigenous population aged 15 to 24, at 20.0%. Moreover, the unemployment rate for Indigenous men aged 15 to 24 was 24.3% in 2020, compared to 20.0% for Indigenous women aged 15 to 24.

For the Indigenous population aged 25 to 54, the unemployment rate was 13.0% for males and 10.5% for females in 2020, compared to 7.7% for non-Indigenous males aged 25 to 54 and 7.8% for non-Indigenous females aged 25 to 54.

Figure 5 – Annual Unemployment Rates, Total and by Age Group, Sex and Indigenous Status, Canada, 2020 (%)

Figure 5 shows the annual unemployment rates in Canada by age group, sex and the Indigenous status in 2020. Across all age groups and sexes, Indigenous unemployment rates are higher than the rates for the non-Indigenous population. For the group aged 15 years and older, the unemployment rate for the entire Canadian population was 9.6%. The rate for the Indigenous population was 14.2% and for the non-Indigenous population was 9.4%. For the group aged 15 to 24, the rate amongst Indigenous youth was 22.2%. The unemployment rate for Indigenous male youth was 24.3% and the rate for Indigenous female youth was 20.0%. For the group aged 25 to 54, the rate amongst Indigenous population was 11.7%. The unemployment rate for Indigenous male population was 13.0% and the rate for Indigenous woman was 10.5%.

Note: Statistics Canada does not publish quarterly data on the unemployment rate by Indigenous status.
Source: Figure prepared by the authors using data obtained from Statistics Canada, Table 14-10-0364-01, Labour force characteristics by province, region and Indigenous group,” accessed 3 March 2021.

Exchange Rates

Over the June 2020 to December 2020 period, the value of the Chinese renminbi, euro and U.K. pound sterling increased by 2.4%, 2.2% and 1.4% relative to the value of the Canadian dollar, respectively. The value of the U.S. dollar and Japanese yen relative to the value of the Canadian dollar decreased by 5.5% and 2.0% over the same period, respectively.

Figure 6 – Variation of Selected Exchange Rates, June 2020 to December 2020 (%)

Figure 6 shows, over the June 2020 to December 2020 period, the variation in the value of the following foreign currencies relative to the Canadian dollar: an increase of 2.4% for the Chinese renminbi, an increase of 2.2% for the euro, an increase of 1.4% for the U.K. pound sterling, a decrease of 5.5% for the U.S. dollar, and a decrease of 2.0% for the Japanese yen.

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 3 March 2021.

Authors: Andrew Barton and Michaël Lambert-Racine, Library of Parliament



Categories: Economics and Finance

Tags: , , , , , ,

%d bloggers like this: