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August 28, 2020CANADIAN ECONOMIC ACCOUNTS Q2 2020 
Real gross domestic product (GDP) growth decreased 38.7 per cent (figures seasonally adjusted at annual rates unless otherwise stated) in Canada in the second quarter of 2020 due to the COVID-19 pandemic. This follows on the 8.2 per cent decline in Q1 and is the steepest quarterly decline since the data started in 1961. The decline reflects large decreases in household spending, business investment and trade resulting from the shutdowns of businesses, job losses, border closures, travel restrictions, and low oil prices. Final domestic demand declined 37.4 per cent in Q2 2020.
Household spending declined, the steepest quarterly decline ever recorded with declining goods (-29.6 per cent) and services (-51.8 per cent) consumption. Declines in purchases of new and used motor vehicles reflect closures of car dealerships, income uncertainty and reduced transportation needs. Semi-durables (-42.7%) declined with lower spending on clothing while non-durable (-13.8%) had a smaller decline after rising in Q1. Service spending declined is attributed to lower accommodation and food service and transportation services.
Residential structures investment declined 47.6 per cent in Q2 with physical distancing measures and work stoppages. Declines occurred in ownership transfer costs, renovations and new construction. Home resale activity were lower in nearly all major urban centres. New construction was down for single and multiple-unit dwellings with Quebec posting the largest decline.
There was record decrease in business investment (-50.7%) due to shutdowns, reduced demand for transportation equipment, and uncertainty. Business investment in cars, trucks, aircraft were all down. Substantial declines occurred in engineering structures, non-residential buildings, research and development, mineral explorations. Software investment had a small decline in Q2.
Export and import volumes were down as many other countries, including major trading partners, also had substantial production closures and limits to non-essential travel. Exports of goods was down 55.6 per cent with declining volumes in motor vehicles and parts, industrial machinery and equipment, aircraft, and intermediate metal products. Service exports were down 56.8 per cent on lower travel and transportation services. Increases exports volumes did occur in farm and fishing products, nuclear fuel, and pharmaceuticals. Import volumes were down 64.1 per cent, led by motor vehicles and parts, aircraft, crude oil, industrial machinery and equipment, travel services, and transportation services.
Inventories declined $37.9 billion in Q2, the first inventory drawdown since Q4 2016.
The terms-of-trade (ratio of price of exports to price of imports) was down with export prices declining by greater amount than import prices with the fall in oil prices. The decline in terms-of-trade contributed to lower real gross national income and thus real purchasing power of Canadian income. The GDP deflator was down 4.6 per cent in Q2 2020.
Nominal GDP decreased 41.5 per cent in Q2 2020 after the 9.9 per cent decline in Q1. Annualized compensation of employees declined 31.1 per cent (steepest drop ever recorded) led by lower income in personal and professional services, construction, manufacturing, and wholesale and retail trade. The net operating surplus of corporation declined 67.8 per cent, but was partially mitigated by Canadian Emergency Wage Subsidy and net mixed income was down 15.2 per cent. The consumption of fixed capital for corporations, unincorporated entities, and government all grew as capital stock depreciates. Taxes less subsidies on production fell from an annualized $101.4 billion in Q2 2019 to $8.4 billion in Q2 2020.
CANADA HOUSEHOLD CURRENT ACCOUNT
The sources of earned or primary household income all declined in Q2 2020 compared to the previous quarter. At annualized rates, the declines in compensation of employees (-30.9%), net mixed income (-15.2%) and net property income (-1.9%) caused primary household income to decline 26.4 per cent for the quarter. Primary household income (unadjusted) declined $584 per capita compared to Q2 2019.
Offsetting the declining primary income sources was an increase in transfers to households, mostly from the introduction of new government income support programs (i.e. CERB) and increases to existing transfers. Government transfers to households were $61.4 billion or $1,632 per person (unadjusted) greater in Q2 2020 than Q2 2019. Household transfers paid out were down to every other sector (non-residents, non-profits, corporations, government) with a 21.7 per cent decline.
The increase in transfer received in Q2 2020 completely offset the decline in primary income sources to leave households with higher disposable income (+$1,245 per capita) than Q2 2019. Disposable household income increased 50.9 per cent compared to Q1 2020. With household consumption declining (-$1,292 per capita) and the rise in disposable income, the household savings rate increased to 28.2 per cent.
A seasonally adjusted annualized rate shows what the percent change would be if the quarterly rate continued for four quarters. It is computed by compounding the quarterly rate for four quarters. Reporting annualized rates facilitates comparability between annual and quarterly growth, but can exaggerate change when series are volatile. The COVID-19 shocks do not indicate a contraction of Canadian GDP by 38.7 per cent in Q2. It would take four quarters of compounded contraction at the same pace as reported in Q2 to reduce Canadian GDP by 38.7 per cent. Real GDP in Q2 contracted 11.5 per cent compared to Q1 2020.
Source: Statistics Canada Gross domestic product, income and expenditure, second quarter 2020
Statistics Canada. Table 36-10-0103-01 Gross domestic product, income-based, quarterly (x 1,000,000)
Statistics Canada. Table 36-10-0104-01 Gross domestic product, expenditure-based, Canada, quarterly (x 1,000,000)
Statistics Canada. Table 36-10-0111-01 Current and capital accounts - National, Canada, quarterly
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