Canada’s Economic Recovery Hit by Rising Virus Cases
Canada’s economic recovery is encountering significant headwinds, with fresh data indicating a slowdown in momentum following the initial rebound experienced in the summer months. High-frequency indicators reveal a more uneven pace of growth in September, coinciding with rising virus cases and the subsequent tightening of restrictions across provincial governments. The path to a full economic recovery is proving increasingly difficult, beset by obstacles that threaten to derail progress. This latest assessment comes from a confluence of indicators, including alternative data derived from credit card transactions, restaurant bookings, and job posting activity, all pointing toward a deceleration in economic growth. Experts warn that the current trajectory is unsustainable, particularly given the escalating severity of COVID-19’s resurgence and the associated measures intended to contain its spread.
The data underscores a key shift in consumer behavior. Spending patterns, as measured by Scotiabank’s credit card data through September 25th, show a plateau after the upward trend observed between April and mid-July. The initial surge in spending, year-over-year, has leveled off, indicating current spending is approximately at the same level as the previous year. This flattening effect is largely attributed to the inability of businesses to fully restore their pre-pandemic operational capacity, and a cautiousness among consumers in the face of ongoing uncertainty. Nikita Perevalov, an economist at Scotiabank, noted this dynamic, stating “Between April and mid-July, things were trending upward on a year over year basis and since then spending is kind of flat relative to last year,” reinforcing his belief that current activity is not exceeding last year’s level.
Furthermore, the nature of that spending is illuminating. The rebound in September, following an August lull, was primarily fueled by increased purchases in the home improvement sector. This surge reflects the robust activity in Canada’s housing market, which has remained remarkably resilient compared to other sectors struggling to recover from the pandemic’s impact. This continued strength in the housing market represents one of the few areas of the Canadian economy still experiencing growth, but it also highlights a potential vulnerability given the sector’s sensitivity to interest rate changes and broader economic conditions. Economists highlight that the recovery is heavily reliant on this single sector, suggesting a significant downturn in housing could have a cascading effect on the broader economy.
However, the picture isn’t entirely positive. Concerns are mounting as sector-specific data casts a darker shadow. OpenTable data reveals a concerning trend within the restaurant industry. September saw an average of approximately 33 per cent fewer seated diners at Canadian restaurants compared to the same period last year. While this represents a slight improvement from August, the industry continues to face significant challenges. This decline is compounded by ongoing restrictions, with restaurants and bars in Montreal and Quebec City ordered to close for a month, and further shutdowns announced in Ontario impacting food and drink establishments. The impending winter months also pose a risk, as colder temperatures and the closure of patios will likely reduce consumer willingness to dine indoors, exacerbating the existing challenges facing the hospitality sector.
The difficulties confronting the Canadian economy are further amplified by broader macroeconomic considerations. TD economist Sri Thanabalasingam cautioned that “If cases continue to pick up and hospitalizations follow suit, governments could impose even tighter restrictions, resulting in weaker spending activity in the coming weeks and months.” This delicate balancing act between public health and economic recovery presents a significant hurdle. The path to full recovery is proving exceptionally difficult, given the capacity restrictions and weak demand currently facing many businesses. Economists estimate that Canada has recovered almost two thirds of the 3 million jobs lost at the height of the pandemic. Recouping the remaining jobs will not be easy, given the lingering operational constraints and depressed consumer demand.
The challenges are confirmed by Bloomberg data, which shows spending patterns are similar. This multifaceted slowdown underscores the necessity for continued vigilance and adaptable economic policy.
