Canadian economy saw record-breaking decline in March

And with oil and real estate weakening, things are set to worsen in the coming months

Canadian economy saw record-breaking decline in March
Steve Randall

If you need more evidence of the reality of the BoC’s bleak view of the Canadian economy, take a look at the latest GDP stats.

As the central bank was intensifying its asset buying program and warning of the worst-ever recession ahead, a new flash estimate from Statistics Canada suggested that GDP in March declined by 9%. The agency said it would therefore be the worst single-month contraction since the series began in 1961 (although the basis of calculation has not been constant).

The flash estimate is an approximation of the scale of economic disruption resulting from the deliberate actions taken to protect the health of Canadian citizens.

On this basis, the first quarter would post a decline in GDP of 2.6%.

Some sectors are doing well though, specifically health, food distribution, online retailing, and streaming services.

Real estate fears
However, along with the decline in oil prices and weak investment in the energy sector, Canada’s real estate sector is also expected to weigh heavily on the economy in the coming months.

“I think it is the Great Reckoning,” Douglas Hoyes, a bankruptcy trustee in Kitchener, Ontario, told Bloomberg. “We’ve been in a period for so long where it didn’t matter what property you bought or how highly leveraged you were. Well, guess what? Now it matters.”

Real estate accounted for 15% of Canada’s output in 2019, well above energy’s 9%.

While some are optimistic – Royal LePage’s CEO Phil Soper is hopeful that the housing market will avoid a price crash – the Canadian Real Estate Association said Wednesday that home sales fell 14% in March as the coronavirus pandemic took hold.

While prices were largely unchanged from February, CREA says that its preliminary data shows that sales and listings in the first week of April were around half the typical level for the time of year.

"March 2020 will be remembered around the planet for a long time," CREA president Jason Stephen told the CBC. "Canadian home sales and listings were increasing heading into what was expected to be a busy spring [but] after Friday the 13th, everything went sideways."

BMO economist Robert Kavcic is also expecting prices to be impacted, but how much depends on the extent of the COVID-19 restrictions.

“The longer the shutdown … lasts, the more likely prices are to start falling,” he told CBC News. “But for now, the market looks to be effectively on hold as listings are falling too, and support measures aim to prevent forced selling."