Real estate and exports are the main drivers of Canada’s economic recovery

During the first quarter of 2021, Canada’s economic recovery was most likely pushed up by a recovering export sector and red-hot real estate market leading the total output close to the pre-pandemic level.

Statistics Canada’s next report is expected to show that the annual GDP reached 6.8% in Q1, says a Bloomberg poll of 17 economists. Meanwhile, we saw a 9.6% gain in the fourth-quarter of 2020. So that may lead the production to within 1.6% of what it was at the end of 2019.

Although the recovery may slow down significantly in the second quarter restrained by new lockdowns, an optimistic report this week will strengthen confidence in Canada’s resilience to the containment restrictions. Economists expect the growth pace to exceed 6% again in the second half of this year.

“The good news is that when COVID-19 restrictions ease, the economy can return to recovery quickly,” – noted Royce Mendes, an economist at CIBC.

It’s a great sign that the national economy has been rebounding almost without support from consumers, who have reduced their spending during the winter because of the restrictions. The consumer spending could be almost unchanged in the first quarter, just like at the end of the previous year.

It means a strong demand may be building to cause growth increase later in 2021.

“The reopen period is extremely interesting,” – Beata Caranci, chief economist at TD Bank says. “How will people react? Will they start spending their extra savings?”

Exports and real estate investment likely led the way at the beginning of this year, combined with businesses rebuilding inventories.

We’ve seen new home construction and home sales reaching record levels at the start of this year. Exports showed significant increases, led by a great rebound in aircraft production and certain commodities. Restocking of inventories was the main contributor to economic growth at the end of 2020.

The possibility of a strong rebound and a faster-than-expected recovery is already making the central bank reduce its stimulus and warn about a rate hike. Economists predict a 6.2% expansion this year, which is only slightly lower than 6.5% expected in case of the U.S.