Market Insights

The pandemic’s toll on human life, and the strain it has put on healthcare systems as well as certain economic sectors not with standing, the impact of the third wave on the broad economy so far looks slight, Derek Holt, Scotiabank Vice-President and Head of Capital Markets Economics writes in a recent economic report. And the economy is starting to rebound amid what has been dubbed the “two-dose summer,” he says. 

The Scotiabank report notes that April’s gross domestic product fell far less than StatCan’s preliminary flash guidance suggested on June 1, when the agency pegged April GDP tracking a decline of 0.8% month over month. Last week, that was revised to -0.3%. May’s ‘flash’ guidance is for another 0.3% m/m drop possibly indicating the economy was flat or may have even posted growth. If not for the positive upward revision to April’s estimated growth, then May would have posted positive GDP growth, Holt writes. 

Given all the internal data at the agency’s disposal, Holt wonders why the guidance isn’t more accurate. “Actual GDP growth, net of all revisions to date, has exceeded preliminary flash guidance in 10 out of the 14 months it has been provided with one notable overshoot in April of last year,” he writes. 

Looking ahead, while there are two ways to track GDP growth, Scotiabank’s ‘nowcast’ model —  which shows growth of 3.5% for the second quarter — would be in line with the Bank of Canada’s (BoC) forecast from the April Monetary Policy Report (MPR), which is based on an expenditure-based GDP concept, he says.

Since the BoC knew at the time of publishing that forecast that the economy was going into third-wave lockdowns that were expected to begin easing in May, Q2 is pretty much “water under the bridge,” Holt says.

“Further, the April MPR had assumed vaccinations would lead to herd immunity ‘later in the year’ after the US achieved this milestone around mid-2021,” he says, noting that Canada could be there by July 14, but if not, then shortly thereafter.

To read the full Scotiabank Economics report on the economy’s growth estimates, click here.