Biannual Update on the Canadian Economy: First and Second Quarters of 2021

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This HillNote highlights key trends of the Canadian economy in the first and second quarters of 2021. Canadian real gross domestic product (GDP) increased in the first quarter of 2021 and then retreated slightly in the second quarter of 2021. Although the economy is recovering from the impact of the COVID-19 pandemic, the recovery remains uneven among sectors and groups of people. In addition, the emergence in Canada of the more contagious Delta variant introduced another source of uncertainty to the economic recovery beginning in the second quarter of 2021.

Change in Real Gross Domestic Product

Figure 1 shows that the non-annualized real GDP grew by 1.4% in the first quarter of 2021 and fell by 0.3% in the second quarter of 2021. The Bank of Canada indicated that economic growth in the first half of 2021 was weaker than forecasted. However, the Bank stated that growth is expected to pick up in the third quarter of 2021 as the economy reopens.

Figure 1 – Percentage Change in Non-Annualized Real Gross Domestic Product (GDP), Canada, Third Quarter of 2016 to Second Quarter of 2021 (%)

Figure 1 shows the non-annualized change in real gross domestic product (GDP) on a quarterly basis from the third quarter of 2016 to the second quarter of 2021. Over this period, the highest quarterly GDP growth occurred in the third quarter of 2020, at 9.1%, while the highest quarterly GDP decline occurred in the second quarter of 2020 at -11.3%. Real gross domestic product fell by 0.3% in the second quarter of 2021.

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 Library of Parliament using data 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),” Database, accessed 19 October 2021.

Real Gross Domestic Product Components

The main factors that led to the increase in real GDP in the first quarter of 2021 were rises in business investment, government spending and household consumption, as shown in Figure 2. These factors contributed 0.8, 0.5 and 0.3 percentage points, respectively, to the percentage change in real GDP. In the second quarter of 2021, decreases in exports and business investment contributed -1.2 and -0.1 percentage points, respectively, to the percentage change in real GDP.

Figure 2 – Non-Annualized Contributions to Percentage Change in Real Gross Domestic Product, by Component, Canada, Third Quarter of 2020 to Second Quarter of 2021
(percentage points)

Figure 2 shows the non-annualized percentage change contributions to gross domestic product segmented by gross domestic product components for the last two quarters of 2020 and the first two quarters of 2021. The contribution of household consumption to real gross domestic product was 7.3 percentage points in the third quarter of 2020, 0.2 percentage point in the fourth quarter of 2020, 0.3 percentage points in the first quarter of 2021 and 0.0 percentage point in the second quarter of 2021. The contribution of government spending was 1.5 percentage point in the third quarter of 2020, 0.4 percentage point in the fourth quarter of 2020, 0.5 percentage point in the first quarter of 2021 and 0.2 percentage points in the second quarter of 2021. The contribution of business investment was 2.7 percentage points in the third quarter of 2020, 0.5 percentage points in the fourth quarter of 2020,0.8 percentage point in the first quarter of 2021 and -0.1 percentage point in the second quarter of 2021. The contribution of investment in inventories was -0.4 percentage point in the third quarter of 2020, 1.7 percentage points in the fourth quarter of 2020, -0.2 percentage point in the first quarter of 2021 and 0.7 percentage point in the second quarter of 2021. The contribution of exports was 4.0 percentage points in the third quarter of 2020, 0.3 percentage point in the fourth quarter of 2020, 0.2 percentage point in the first quarter of 2021 and -1.2 percentage points in the second quarter of 2021. The contribution of imports was -6.1 percentage points in the third quarter of 2020, -0.9 percentage point in the fourth quarter of 2020, -0.3 percentage point in the first quarter of 2021 and 0.0 percentage point in the second quarter of 2021.

Note: Household consumption includes consumption by non-profit institutions, and business investment includes investment by such institutions.
Source: Figure prepared by the Library of Parliament using data 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),” Database, accessed 12 October 2021.

Inflation

Figure 3 shows the evolution of consumer price index (CPI) inflation in terms of average quarterly data. Between the third 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 was below 1% in the three last quarters of 2020, between 1% and 3% in the first quarter of 2021 and above 3% in the second quarter of 2021. The Governor of the Bank of Canada stated that inflation is projected to be above the upper limit of the inflation target range through 2021 due to temporary effects, but these effects are forecast to dissipate near the end of 2021, and inflation is forecast to ease back toward 2% in 2022.

Figure 3 – Year-Over-Year Change in Consumer Price Index (CPI) Inflation and the Bank of Canada’s Inflation Target Range, Third Quarter of 2016 to Second Quarter of 2021 (%)

Figure 3 shows the evolution of consumer price index (CPI) inflation in terms of average quarterly data from the third quarter of 2016 to the second quarter of 2021. The CPI inflation rate in the second quarter of 2021 was 3.4%, up from 1.5% in the first quarter of 2021. Between the third quarter of 2016 and the second quarter of 2021, the highest rate of inflation occurred in the second quarter of 2021 at 3.4%, 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 Library of Parliament using data obtained from Bank of Canada, “Inflation: Definitions, Graphs and Data,” Database, accessed 19 October 2021; and Bank of Canada, “Summary of Key Monetary Policy Variables,” Database, accessed 19 October 2021.

Employment

As can be seen in Figure 4, total employment increased by 1.7% over the December 2020 to June 2021 period. The three sectors with the largest increases in employment were accommodation and food services (+5.0%); information, culture and recreation (+4.0%); and professional, scientific and technical services (+3.9%).

In absolute terms, the three sectors with the largest increases in employment were health care and social assistance (79,600 jobs created); professional, scientific and technical services (62,500 jobs created); and accommodation and food services (45,600 jobs created). The agriculture and manufacturing sectors are the only ones that experienced a decrease in employment over that period (‑ 7.2%, or 19,900 jobs lost and -2.5%, or 43,300 jobs lost, respectively).

Figure 4 – Variation in Employment, by Sector, Canada, December 2020 to June 2021 (%)

Figure 4 shows the evolution of employment across all sectors between December 2020 and June 2021. Overall, employment grew by 1.7% across all sectors during that period. The five sectors that experienced the largest increases were accommodation and food services at +5.0%; information, culture and recreation at +4.0%; professional, scientific and technical services at +3.9%; health care and social assistance at +3.2%; and educational services at +2.8%. The agriculture and manufacturing sectors are the only ones that experienced a decrease in employment over that period, at 7.2% and 2.5%, respectively.

Note: “Other services” includes the following: 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 Library of Parliament 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),” Database, accessed 12 October 2021.

Unemployment Rates by Age and Sex

In the second quarter of 2021, the unemployment rate for those aged 15 years and older stood at 8.0%, which represented a decrease of 0.4 percentage points compared to the first quarter of 2021 (see Figure 5).

Those aged between 15 and 24 years experienced a decrease in unemployment of 1.7 percentage points between the first and second quarters of 2021. This was driven by a decrease in unemployment for women of 2.7% between the first and second quarters of 2021. Individuals aged between 25 and 54 years experienced a decrease of 0.4 percentage points in unemployment, while those aged 55 years and over experienced an increase of 0.1 percentage points in unemployment.

The decrease in unemployment was larger for women, except those aged 55 and over. In the second quarter of 2021, their unemployment rate reached 8.4%, compared to 7.5% for men of the same age group.

Figure 5 – Unemployment Rates in Canada by Age Group and Sex, First Quarter 2021 to Second Quarter 2021 (%)

Figure 5 shows the unemployment rates in Canada by age group and sex for the first and second quarters of 2021. For the group aged 15 to 24 years, the unemployment rate for both sexes was 16.9% for the first quarter and 15.2% for the second quarter. For women aged 15 to 24 years, the unemployment rate was 17.3% for the first quarter of 2021 and 14.6% for the second quarter of 2021. For men aged 15 to 24 years, the unemployment rate was 16.5% for the first quarter of 2021 and 15.8% for the second quarter of 2021. For the group aged 25 to 54 years, the unemployment rate for both sexes was 6.9% and 6.5% for the first and second quarters of 2021, respectively. For women aged 25 to 54 years, the unemployment rate was 6.9 % and 6.3% for the first and second quarters of 2021, respectively. For men aged 25 to 54 years, the unemployment rate was 6.9% and 6.7% for the first and second quarters of 2021, respectively. For the group aged 55 years and older, the unemployment rate for both sexes was 7.2% for the first quarter of 2021 and 7.9% for the second quarter of 2021. For women aged 55 years and older, the unemployment rate was 7.1% for the first quarter of 2021 and 8.4% for the second quarter of 2021. For men aged 55 years and older, the unemployment rate for men was 7.3% for the first quarter of 2021 and 7.5% for the second quarter of 2020.

Source: Figure prepared by the Library of Parliament 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,” Database, accessed 19 October 2021.

Exchange Rates

Figure 6 shows that, over the December 2020 to June 2021 period, the value of the Japanese yen, euro, U.S. dollar, Chinese renminbi and U.K. pound sterling decreased by 10.0%, 5.6%, 4.6%, 2.9% and 0.4%, respectively, relative to the value of the Canadian dollar.

Figure 6 – Variation of Selected Exchange Rates, December 2020 to June 2021 (%)

Figure 6 shows, over the December 2020 to June 2021 period, the variation in the value of the following foreign currencies relative to the Canadian dollar: a decrease of 10.0% for the Japanese yen, a decrease of 5.6% for the euro, a decrease of 4.6% for the U.S. dollar, a decrease of 2.9% for the Chinese renminbi, and a decrease of 0.4% for the U.K. pound sterling.

Note: The exchange rate represents the number of Canadian dollars needed to purchase one unit of foreign currency. 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 Library of Parliament using data obtained from Statistics Canada, Table 33-10-0163-01, “Monthly average foreign exchange rates in Canadian dollars, Bank of Canada,” Database, accessed 12 October 2021.

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



Categories: Economics and Finance

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