Thought of the Day - September 17 2021 - Economic Musings

Canada has the tenth-largest economy in the world with a nominal GDP of $1.73 trillion (according to the UN). Canada’s per capita GDP of $46k is ranked 20th globally, while our PPP GDP is ranked 17th globally (Purchasing Power Parity (PPP) also factors in the strength of our currency). One of the main underlying reasons for this positioning is that Canada also has the fourth-highest estimated value of natural resources at $33 trillion.

It has been a while since we took a look at the economy ( Thought of the Day - December 20 - By the Numbers ). One of the metrics used for economic health, for good or bad, is GDP growth. For 2020, the first year of the pandemic, Canada saw a nominal GDP contraction of 5.4%. This was far better than a number of countries such as the UK that saw a reduction of 9.8%. However, compared to other resource countries, such as Australia, which saw almost no contraction, or our major trading partner, the US, which contracted by only 3.5%, it was a poor showing. I did think that Canada would do better than most. However, when compared to the global GDP contraction of only 3.8%, this did not turn out to be the case for 2020.

Also last year, it should be noted that there were a number of countries, for example China and Vietnam, who tackled COVID head-on and, as a result, actually had GDP growth of over 2% last year.

So how are we doing this year? In Q1 our economy got off to a good start. Driven by global resource demand it grew by 4.1%, but, unfortunately, for Q2 we contracted again - this time by 1.1%, the worst showing in the G7(8). While data for Q3 is not yet published, it is expected that this trend will continue and with our fourth-wave business restrictions, it may be hard to end the year with any significant GDP growth, yet alone the over 6% earlier forecast by the Bank of Canada. In contrast, it is forecasted the world GDP will expand by 5% this year, and the US should just best that 5% target (note - global estimates have recently been revised downward as now the world realizes vaccines will not bring a rapid end to the pandemic).

Another indication of the strength of the economy and currency is the rate of inflation. Unfortunately, inflation in Canada has now jumped up to 4.1% (BC with 3.5%), the highest since 2003, and worse than the 3.9% pessimistic prediction. That said, the Canadian dollar is still holding its own against the USD as the US is seeing inflation of over 5%.

So, in conclusion, it seems for 2021, Canada's economy will again struggle to keep up with the rest of the world - as countries like South Korea, who to be fair are having their own issues, look to catch us in the not too distant future.

Cheers

Cliff