Canada: Economy to operate well-below capacity into next year – RBC CM

The GDP contracted at a record 38.7% (annualized) during the second quarter in Canada. Analysts at RBC Capital Markets detailed the drop in Q2 was concentrated in April as May GDP rose 4.8% in May and 6.5% in June. They point out the economic recovery will not be quick, even with an early bounce-back that looks stronger than feared.

Key Quotes: 

“The 38.7% (annualized) drop in GDP in Q2 was more than 4 times the biggest prior drop, and built onto an 8.2% plunge in Q1. The pull-back was widely expected at this point, though, and was still slightly less-bad than the 43% Q2 decline the Bank of Canada assumed in the July Monetary Policy Report.”

“To be sure, the recovery from the pullback in the first half of this year will not be quick, even with an early bounce-back that looks stronger than feared.  Labour markets are still exceptionally soft, and it will take time to reconnect workers with jobs. Activity in the oil & gas sector is still very depressed, and possible esurgence of virus spread will remain a risk until and unless an effective vaccine can be distributed. We continue to expect the economy to operate well-below capacity into next year, but perhaps not quite as far below capacity as previously feared.”