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COVID-19 roundup: Canada’s GDP hit hard by first two months of pandemic, but StatCan projects growth for May

Statistics Canada building and signs are pictured in Ottawa in July 2019. The Canadian Press/Sean Kilpatrick
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It’s day 112 since Canada’s 100th coronavirus case. The number of cases is 104,145 as of publication time, up 227 since yesterday—a 30.3 per cent decrease from the seven-day prior average of 326 new cases. At its peak on May 3, the seven-day average was 1,603 new cases a day. 

The number of COVID-19 cases at an Amazon warehouse in Minnesota last month were at least four times greater than the infection rate of surrounding communities, according to an internal memo reviewed by Bloomberg.

Green shoots amid GDP wreckage: Canada’s economy shrank by 11.6 per cent in April, Statistics Canada reported on Tuesday, as COVID-19-related shutdowns hit almost every sector. Across the first two months of the pandemic, real GDP dropped nearly a fifth, leaving millions out of work. But the agency indicated better news to follow, with a preliminary projection of three per cent growth in May, as output resumed in fields like manufacturing and retail.

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Air transportation unsurprisingly led April’s losses, falling 93.7 per cent month over month as both travellers and goods stayed on the ground. Services firms as a whole fared significantly better than companies that make stuff, dropping 9.69 per cent versus 16.97 per cent. Construction and manufacturing both lost more than a quarter of output between February and April. But accommodation and food services was the hardest hit of the 20 major industrial sectors, down 63.73 per cent compared to prior to the pandemic, followed closely by entertainment and the arts, a 56.14 per cent drop. “COVID-19 kept professional sports on the sidelines, with increasing uncertainty as to any return to play in arenas and stadiums with spectators in the coming months,” StatCan noted, citing cancelled games in the NHL, NBA, MLB and even MLS.

As traditional industries struggle with the pandemic, the innovation economy has proved relatively resilient. Information and communication technology services firms posted a 0.97 per cent month-over-month gain in April. Computer systems design (2.06 per cent) and data processing and hosting (2.14 per cent) were among a handful of subsectors in positive territory. The output of scientific research and development service providers also increased (1.06 per cent). 

Discretionary shopping was hit hard in April—clothing stores lost more than two-thirds of their business, and economic activity at hobby, book, music and sporting goods vendors was down 53.35 per cent. But StatCan’s figures appear to show consumers shifting their spending online. Non-store retailers—a category that includes e-commerce platforms—increased 17.33 per cent month over month. Other links along the delivery chain like warehousing and storage (2.23 per cent) and postal services and couriers (2.95 per cent) also saw growth, albeit more modest.

Economists responded to Tuesday’s figures with tempered positivity. Factoring in the May uptick, “the economy was still operating almost 16 per cent below the level it was in February” as of last month, CIBC Capital Markets senior economist Royce Mendes wrote in a note. “To put that into perspective, during the worst of the financial crisis, the Canadian economy was not operating more than five per cent below it’s prior peak.” 

Second-quarter GDP “will still be unprecedentedly bad as a whole, and re-escalation of virus spread in regions south of the border have raised obvious concerns about the impact of easing physical distancing measures too quickly,” RBC Economics senior economist Nathan Janzen wrote in a note. But the early May and June economic figures “look a little less bad than most were expecting even a month ago.”

In the markets: U.S. delivered their best quarter in over 20 years, a sharp turnaround after falling about 35 per cent in six weeks at the start of the pandemic. The rally appears largely divorced from the health crisis, however, as the number of new COVID-19 cases in the country continues to soar. It also fails to reflect the health of the economy. The Business Roundtable’s economic outlook index released Tuesday dropped 38.4 points compared to last quarter, bringing it to its lowest since Q2 2009. The measure is based on CEOs’ plans for capital spending and hiring as well as expectations for sales over the next six months. Most major U.S. banks, meanwhile, say they’ve performed well enough on the U.S. Federal Reserve’s stress test to continue issuing quarterly dividends. In Canada, the TSX was up 0.82 per cent by close, and the loonie hit 73.6 cents U.S. in late afternoon trading, up 0.62 per cent.

Markets elsewhere in the world were more mixed. European stocks reacted to news that the U.K. economy contracted 2.2 per cent in the first quarter, more than initially thought and the biggest fall since 1979. In Asia, new reports predict Hong Kong’s economy could contract by as much as five per cent this year. Ongoing instability in the global oil sector—including major writedowns of oil and gas giants—is keeping the markets on edge.

“If a face mask mandate meaningfully lowers coronavirus infections, it could be valuable not only from a public health perspective but also from an economic perspective because it could substitute for renewed lockdowns that would otherwise hit GDP”: New research from Goldman Sachs has found that a national mask mandate in the U.S. would slow the growth rate of new coronavirus infections in that country and prevent the loss of five per cent in GDP risked by additional lockdown measures.

Cross-country checkup: Toronto is planning to make face masks mandatory in indoor public spaces; Premier Doug Ford has resisted calls for a provincial rule requiring masks, saying it would be hard to enforce. Meanwhile, a group led by Canadian doctors is calling for a nationwide rule requiring masks in all indoor spaces outside the home. B.C. health officials are allowing visitors at care homes. Nova Scotia has reported a new case of COVID-19, its first in three weeks. 

Bay Street to Main Street: 

  • Air Canada is indefinitely suspending 30 domestic flights and ending operations at eight regional airports. CEO Calin Rovinescu told the Financial Post the carrier was in “catastrophic territory,” unlike any previous crisis. 
  • Purolator said it is creating more than 1,000 jobs, citing a 30 per cent surge in home deliveries and a 120 per cent spike in retail e-commerce. 
  • In a delayed earnings report, Cineplex said the pandemic has had a “material negative effect” that resulted in a $178.4-million loss in the first quarter. The Toronto-based movie-theatre company will open some theatres in British Columbia, Saskatchewan, Quebec, New Brunswick, Nova Scotia and Newfoundland on Friday.
  • Workers at Safeway in Alberta have voted to strike, after the company ended its $2-per-hour “hero pay” for frontline workers. 
  • Shopify has teamed up with Chipotle to power a “virtual farmer’s market,” allowing farmers in the fast-food dealer’s supply chain to build or improve their own e-commerce sites.  

In the lab: The U.S. Food and Drug Administration released final guidelines for approving coronavirus vaccines; they require any vaccine candidate to be at least 50 per cent more effective than a placebo. Biotech startup AnGes has launched Japan’s first clinical trial. India’s Bharat Biotech’s vaccine candidate has also been approved to begin human trials, the first in the country. A growing body of evidence shows most infected people aren’t spreading the coronavirus. Here’s why

Drinking from the firehose: 

  • There have been 3,427 Chapter 11 bankruptcy filings in the U.S. so far this year, nearly as many as in the first half of 2008. 
  • Global M&A activity in the second quarter of the year hit its lowest level since the third quarter of 2009, as many companies halted expansion plans. 
  • Airbus is reportedly planning to restructure its business, including its biggest round of layoffs ever, to help deal with the impact of the pandemic. 
  • The U.K. has expanded the eligibility criteria for its COVID-19 startup rescue package to include companies whose parent firms are headquartered abroad. 
  • Microsoft is planning to offer free digital skills training to some 25 million people, as those laid off during the pandemic look for new skills suited to the recovering economy. 
  • Global app revenue reached US$50.1 billion in the first half of 2020, up 23.4 per cent compared to the same period last year. 
  • Shell is writing down the value of its assets by as much as US$22 billion, after lowering its long-term outlook on oil and gas prices. 

Around the world: The World Health Organization is sending a team to China next week to investigate the origins of the virus. New Zealand announced that the Asia-Pacific Economic Cooperation forum scheduled for Auckland in 2021 will now be held virtually. The European Union will allow travellers from 15 countries, including Canada, China (conditional to a reciprocal arrangement), Japan, South Korea and New Zealand, to enter the bloc; the “safe list” will be reviewed every two weeks and notably does not include the U.S. and Russia. Sweden has appointed a commission to investigate the country’s handling of the pandemic amid mounting criticism of its lax approach and higher death rate compared to its Nordic neighbours.

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More than a million businesses have borrowed almost £43 billion from three government coronavirus relief schemes over the last three months, according to U.K. Treasury figures. India will spend an additional US$12 billion to provide free food grains to an estimated 800 million people for another five months. The U.S. Paycheck Protection Program, the small-business rescue fund, is expiring today with US$130 billion left to lend. Freeform is working on a new work-from-home production: “Love in the Time of Corona.”

“Pipelinefunk”: A German musician played his saxophone into a set of large gas pipes he stumbled on while jogging. “This sound on the tube, in this loneliness, always gives me the feeling: Hey, you’re not alone there,” he said.” Listen here.

* We’re emphasizing new cases, rather than running totals, because “flattening the curve” is when each day’s new cases are fewer than those of the previous day. The percentage increase is determined based on how today’s cases compare to a rolling seven-day prior average.

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