Canada’s Economy Showed Unexpected Strength to End 2020

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Canada’s economy showed surprising strength in the final two months of 2020, even amid a new wave of Covid-19 restrictions.

Gross domestic product expanded 0.7% in November from a month earlier, Statistics Canada reported Friday in Ottawa, topping the 0.4% forecast of economists in a Bloomberg survey. A preliminary estimate from the agency showed GDP grew 0.3% in December, defying expectations for a contraction.

Friday’s report is helping to ease concern about the economic costs from a second wave of lockdowns that has closed large parts of the country. Some analysts are even questioning whether a first-quarter contraction, which had been almost taken for granted, will even happen.

Canada’s Economy Showed Unexpected Strength to End 2020

“Today’s result for November and early read on December do indeed suggest that the economy overall is managing much, much better with this second stage of lockdowns,” Doug Porter, chief economist at Bank of Montreal, wrote in a report to investors. Porter said he’s raising his 2021 GDP forecast to 5%, from 4.8%, “as a direct result of this high-side surprise.”

The unexpected resilience largely reflected gains in resource production and manufacturing. Growth in the fourth-quarter came in at about 8% annualized, according to Bloomberg calculations, above the 4.8% pace projected by the Bank of Canada.

The Canadian dollar jumped on Friday’s report, gaining 0.7% to C$1.2740 against the U.S. currency at 10:31 a.m. Toronto time. The yield on government 10-year bonds climbed 9 basis points to 0.9%.

The numbers, which are preliminary for the quarter, also show Canada’s economy outperformed that of the U.S. to end the year. The U.S. recorded a 4% annualized gain for the three months through December.

For all of 2020, Canadian GDP appears to have shrunk 5.1%, the agency said. While better than analysts expected, it’s a bigger hit than the U.S.’s 3.5% contraction.

“Outside of sectors specifically affected by the virus, the economy appears to faring well,” Royce Mendes, an economist at Canadian Imperial Bank of Commerce, said in a report to investors. “That said, the economy will only be able to outrun the second wave of the virus for so long.”

©2021 Bloomberg L.P.

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