Better-than-expected growth in November pushed the Canadian economy above its pre-pandemic level for the first time in nearly two years, but the surge in COVID-19 cases attributed to the Omicron variant is expected to inflict another setback in beginning of 2022.
Canada’s real gross domestic product (GDP) rose 0.6% in November, posting a sixth consecutive month of growth, lifting it 0.2% above its February 2020 level, the report said. Tuesday Statistics Canada.
However, growth lost momentum at the end of the year. The federal agency said its preliminary estimate for December suggested real GDP remained essentially unchanged.
However, Bank of Montreal chief economist Douglas Porter said the weakness may be short-lived. In particular, he noted that the economy grew in November despite the devastating floods in British Columbia, and appeared to have held firm in December despite Omicron.
Statistics Canada said its preliminary estimate would put growth for the year as a whole at 4.9%. This result, which will not be fully determined until next month, represents a turnaround from 2020, when the Canadian economy had its worst year on record, with output down 5.4%. The agency further estimates that the economy grew at an annualized rate of 6.3% during the fourth quarter. If this pace holds true, it will mark the fastest quarterly growth of last year.
Growth of in-person activities
Gains were seen in November in the wholesale trade sector, which saw its strongest monthly growth since July 2020, and in the manufacturing sector. Accommodation and food services also both saw increases, with more travelers and looser capacity restrictions at bars and restaurants in Ontario and Quebec.
There was also growth in the finance and insurance sector, which Statistics Canada attributed to abnormally high levels of activity in November as investors shifted funds to safer assets amid uncertainty. linked to the Omicron variant, when it emerges.
Economist Tu Nguyen of consultancy RSM Canada said high vaccination rates in Canada had helped the recovery. “It allowed us to fill arenas, performance halls, hotels and restaurants, and we saw a significant increase in in-person activities,” she said.
Despite growth in restaurants and sporting events, economist Stephen Brown of Capital Economics noted that the arts and entertainment sector was 20% below pre-pandemic levels and accommodation and food services still remained far from their February 2020 level.
The Bank of Canada indicated last week that it expects the Omicron variant to dampen spending in the first quarter and slow growth to an annualized rate of around 2.0%.
Although he expects a contraction in January, Royce Mendes, managing director and head of macroeconomic strategy at Desjardins, said he believes the central bank will focus on the strong performance of late 2021 and move forward. with a first increase in its key interest rate in March.