Canadian Economic Recovery On-Track

The Canadian economy has been surprisingly resilient through the pandemic and there have been a spectrum of predictions about contraction and growth. Only a few months ago, there was talk about contraction in output and this has swung to strong growth. So where are we at now? ​

Annualised GDP growth in Q1 came in at 5.6%, whicih was was below the expectation of 6.3% growth. But we can't too disappointed by this miss to the downside because the Candian economy recovery is on the right track. Tle labour market is strong, fiscal policy is supportive, commody prices are rising and the vaccination program is going well.  

A Good Mix of Growth

The Canadian GDP shows growth in numerous areas. Consumer spending rose an an annualised rate of 3.4%, investment was up 17%, government was up 6.2% and net trade made a positive contribution. However, inventories subtracted 1.4% from the headline growth. This leaves GDP output 1.5 percentage points below the pre-pandemic peak and in the current quarter, there is a strong possibility of output being the same as or better than pre-pandemic lavels. Overall, its a good mix of growth.

How Does Canada Compare with the US?

The vaccination program has been firing on all cylinders and is currently getting turbo boost as it overtakes the US in terms of the proportion of the population haveing recieved at least one vaccination dose. In addition, the labour market is also bouncing back more strongly than in the US with employment just 2.4 percentage points below its pre-pandemic peak. In contrast, US employment is 5.4 percentage points below its pre-pandemic peak. 

Inflationary Pressures?

Helping this along is the ongoing stimulus, and increasing commodity prices but is this causing inflation to run hot? Inflation is certianly on an upward trajectory moving above target so the Bank of Canada is on track to taper its weekly QE asset purchases for a third time in July and rate hikes in the seond half of 2022. With all these factors in the melting pot, the scene is set for a robust economic recovery.