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Amid stricter COVID-19 measures in the wake of the third pandemic wave, Canada's real gross domestic product (GDP) contracted by 0.3 per cent in April 2021, Statistics Canada reported on Wednesday, June 30.
The data agency noted that this was the first GDP decline for the country after continuous monthly increases for the past 11 months. It was, however, not as steep as StatCan's projection of 0.8 per cent.
As for May 2021, Statistics Canada has estimated that the country's economy could contract by another 0.3 per cent month-over-month.
Why did the GDP decline?
Due to a sudden surge in coronavirus cases in April, provinces across Canada had to reinforce lockdowns to slow down the spread. As a result, the economy, which was rebounding from the prior wave of the pandemic, suffered a setback and led to the contraction in the GDP.
Retail trade declined notably in April, and was likely down in May as well. The decline was majorly due to the closure of non-essential businesses.
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The housing bubble was also affected the GDP as it declined in April for the first time since October 2020. During that period, the housing market frenzy eased in the country, and it is estimated to affect the economy in May as well.
The manufacturing sector was also hit as normal operations were disrupted. It contracted by one per cent in April after surging by 1.5 per cent in March. As all sorts of activities came to a screeching halt in April, the accommodation and food services sector was hit badly, dipping by 4.6 per cent in April.
Warm weather and reduced industrial work also led to a decline in electric power generation, which caused the utility sector to fall by 1.2 per cent.
What’s next for the Canadian economy?
Canada releases its GDP reports on a monthly basis. In March 2021, the Canadian economy posted gains of 1.1 per cent. However, the decline in April and the expected dip in May's GDP is likely to affect the Canadian economy.
The Bank of Canada could also lean away from raising interest rates anytime soon. Rising interest rates are indicators of a strengthening economy. If the GDP declines for two months straight, this rise may not happen in Canada at the moment.
Generally, investors prefer investing in a healthy economy and as uncertainty looms due to the ongoing pandemic, Canada may have to wait for more significant investments.
The above constitutes a preliminary view and any interest in stocks should be evaluated further from investment point of view.
