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Canadian Economy at a Glance

BDC Economic Letter – February 2022

The Business Development Bank of Canada (BDC) Source article can be found [HERE]

Canadian economy surpassed its pre-pandemic level in November

Good news: growth continued to strengthen in the final quarter of 2021. Monthly GDP finally reached its pre-pandemic peak in November. However, that was before the Omicron wave hit Canada, forcing the reintroduction of health measures across the country.

Gross domestic product continues to rise

Real gross domestic product rose 0.6% in November on top of October’s solid gain of 0.8%. The growth was broad-based across both goods and services industries. Only three of the 20 industries surveyed by Statistics Canada slowed during the period. This was well above analyst expectations, especially considering the impact of flooding in British Columbia on freight transportation during the month.

Of particular note was a rebound in the accommodation and food services sectors in November. After two months of decline, restaurant and bar activity finally benefitted from the lifting of capacity limits (+2.0% compared with October). There was also a strong improvement in accommodation services (+7.1%), thanks to the return of travellers.

There is still a long way to go before these sectors, which were hardest hit by the pandemic, are back on their feet. Omicron will likely further accentuate imbalances between sectors that has marked the pandemic recession.

Decline in employment: Blame it on Omicron

As expected, the labour market is starting 2022 on a sour note. Employment fell in January, the first national decline in eight months. Once again, job losses were concentrated in the sectors most affected by the pandemic, including accommodation and food services (-113,000), and the arts and culture industry (-48,400).

The losses were concentrated in Ontario (-145,700) and Quebec (-63,000), the provinces that have been the most aggressive in locking down to combat Omicron. The picture should brighten as soon as February with the removal of certain health measures.

Interest rate: Mark your calendar

The stage is set for the Bank of Canada to raise its policy rate for the first time at its meeting on March 2. Inflation hit a 30-year high in December at 4.8%. There was still too much uncertainty about the size and duration of Omicron’s impact on the Canadian economic recovery to raise rates at the January meeting. Data capturing the impact of the latest round of lockdowns will still be scarce by the time the bank has to make its decision in March, but according to the provincial plans the economy should be almost fully reopened by then.

Before Omicron, the economy had good momentum. Business confidence, investment intentions and hiring intentions were all in the green. Once the latest restrictions are lifted, confidence should rebound strongly and continue to boost Canadian business productivity.

Key indicators—Canada