Canada’s economy had its worst quarterly showing since 2009 through the first three months of 2020 owing to COVID-19, Statistics Canada said Friday, warning an even steeper drop may be coming.
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Gross domestic product fell at an annualized rate of 8.2 per cent in the first quarter, including a 7.2-per-cent drop in March as restrictions by public health officials began rolling out, including school closures, border shutdowns and travel restrictions.
Preliminary information indicates an 11 per cent drop in GDP for April, but the statistics agency said that figure is likely to be revised as more information becomes available.
Similarly, the agency said first-quarter figures are likely to have larger than usual revisions in subsequent data releases. Some numbers had to be estimated because they were not available.
Early indications are that March and April could end up as the largest consecutive monthly declines on record.
The drastic drop in gross domestic product likely doesn’t fully reflect the experience of every Canadian, said BMO chief economist Douglas Porter, noting GDP is just one barometer of how the pandemic has affected the domestic economy.
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“You don’t get the entire picture just from GDP and even from employment (figures) because policy-makers have stepped up with such unusual and aggressive actions that a lot of the common metrics just don’t apply 100 per cent in this episode,” Porter said in an interview.
The federal response to date totals about $152 billion in direct spending. The parliamentary budget officer has said that could leave the deficit at $260 billion, with a national debt north of $950 billion.
A preliminary estimate released by the Finance Department on Friday showed deficit of $21.8 billion for the fiscal year that closed in March. The figure will still be subject to revisions, which may land it closer to the government’s last estimate of $26.6 billion.
The monthly fiscal monitor also showed the debt pushed past $794.4 billion.
Many of the items adding to this year’s deficit are expected to show up in supplementary spending estimates. The documents will be scrutinized for four hours in mid-June based on the motion the adopted this week to put the Commons on extended hiatus until late September.
Budget officer Yves Giroux told a Commons committee on Friday that would provide parliamentarians little opportunity to properly scrutinize tens of billions, if not over $100 billion in proposed spending.
“It comes up as a very expensive four hours potentially for Canadian taxpayers,” he said. “The amount of scrutiny for this unprecedented spending will also be unprecedented, but for the wrong reasons.”
The latest federal spending figures showed $41.44 billion has been paid to 8.29 million people through the Canada Emergency Response Benefit, and $7.9 billion in wage subsidies to 181,883 companies. Other figures posted Friday showed $652.6 million has been paid in student emergency aid to 478,399 people.
MPs on the Commons finance committee were told Thursday the cost of the wage subsidy program is somewhat less than the original $73-billion estimate. Consultations are underway to understand why companies aren’t accessing the program that covers 75 per cent of salaries, subject to a cap of $847 per week, per employee.
Asked about the lopsided spending, Prime Minister Justin Trudeau said the subsidy will become “more and more important” as restrictions ease and businesses reopen. He also said the CERB has helped “support millions of Canadians who need help paying for groceries, paying their rent.”
Statistics Canada said household spending, a backbone of the Canadian economy, was down 2.3 per cent in the first quarter of 2020, the steepest quarterly drop ever recorded.
The drop in household spending was broad, affecting goods like new cars and clothing, and services for food as bars and restaurants in particular were ordered closed. Instead, spending on going out became money spent staying in, Statistics Canada said, noting increases in household food and alcohol by 7.2 per cent and six per cent, respectively.
As a result of less spending overall, the savings rate rose for the quarter to 6.1 per cent from the 3.6 per cent recorded in the fourth quarter of 2019 with higher rates recorded at higher income levels.
The savings built up during the shutdown period could translate into extra spending as restrictions ease, said CIBC senior economist Royce Mendes in a note.
TD senior economist Brian DePratto wrote in a note that it isn’t unreasonable to think a modest recovery may already be forming.
“The key question is what kind of recovery? Given the significant hits to incomes and longer-lasting impacts on some industries, a marathon appears more likely than a sprint.”