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Canada’s Economy Expected to Rebound After Third-Wave Slump

Canada’s Economy Expected to Rebound After Third-Wave Slump

Canada’s economy sprang back to life over the summer as vaccine-led reopenings spurred a return to growth, though a new wave of cases is beginning to chip away at some of the optimism.

On Tuesday, Statistics Canada is expected to report the nation’s economy bounced back in June and July after slowing sharply in the second quarter following a series of strict lockdowns earlier in the year. The turnaround over the summer sets the stage for a strong rebound in the second half of this year that will bring economic activity well above pre-pandemic levels.

Canada’s Economy Expected to Rebound After Third-Wave Slump

It all represents another instance of resiliency for an economy hit by a succession of Covid waves over the past year, fueling confidence it could easily survive another surge in cases. That’s why economists anticipate the expansion will accelerate to about a 7% annualized pace in the final half of this year, according to the median estimate of a Bloomberg survey earlier this month. 

Even the 2.5% growth expected in the second quarter, which would be the slowest since the depths of the pandemic last year, represents a good showing given how strict the lockdowns were at the time, economists said.

“The main story is the economy managed to churn out a little bit of growth even as much of the country was dealing with heavy restrictions in the spring,” Doug Porter, chief economist at Bank of Montreal, said by phone. “That’s relatively impressive.”

Parsing Data

Virus restrictions widely eased by July across Canada, allowing consumers to buy services they hadn’t for months like haircuts and workout classes. Vaccines also ramped up quickly over the summer, making households more comfortable about shopping and going out.

Still, analysts will be parsing the data for a sense of how much consumers remain spooked by the pandemic, and their willingness to unleash some of the pent-up demand and built-up savings. 

For Royce Mendes at Canadian Imperial Bank of Commerce, any evidence on Tuesday of stronger-than-expected consumption in the second quarter will ease worries about the impact of any future surge in cases.

How much people spent in the middle of the lockdowns “will be important in understanding how we will get through this fourth wave,” Mendes, an economist at CIBC, said by phone.

The base-case scenario for most economists is that the economy will brush off a new wave. All 16 analysts surveyed by Bloomberg anticipate growth of more than 4% in the fourth quarter, and no less than 6% in the third quarter. 

Yet, another Covid breakout remains the biggest risk to the outlook. Over the past seven days, new daily cases averaged almost 3,000, the highest level since May.

“We are bit concerned with the delta variant that we could be in modified business again by the fourth quarter,” Beata Caranci, chief economist at Toronto-Dominion Bank, said by phone, adding she expects a “blow out” number for the third quarter.

©2021 Bloomberg L.P.