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Canada's economy bounces back, with 4.5 per cent growth in May

TORONTO, July 18, 2020 -- People dine on the patio of a restaurant in Toronto, Canada, on July 18, 2020. The City of Toronto launched a program called "CafeTO" in July to allow restaurants and bars to expand their patio space to safely serve more customers during the COVID-19 pandemic. (Photo by Zou Zheng/Xinhua via Getty) (Xinhua/Zou Zheng via Getty Images)

Canada’s economy bounced back in May after being crippled by the unprecedented economic effects of COVID-19 in the previous two months.

Real gross domestic product (GDP) grew 4.5 per cent in May as provinces continued to reopen, according to Statistics Canada.

Construction rebounded 17.6 per cent and retail trade grew 16.4 per cent, but parts of the economy continue to struggle.

“On a more sour note, aerospace manufacturing continued to regress in May, falling by 5.1 per cent. Air transportation services picked up modestly, but activity remained essentially shut down with the sector operating at less than 4 per cent of pre-COVID activity,” said Pedro Antunes, chief economist at the Conference Board of Canada.

“These and other sectors related to travel and tourism will struggle to get through a long, drawn out recovery. Activity is unlikely to return to normal until a vaccine or treatment for COVID-19 is discovered and available globally—a situation we assume won’t happen until late next year.”

Accommodation and food services rose 24.2 per cent, and 35.1 per cent at food services and bars as restaurant patios opened up.

“Note that while hotels/restaurants had the largest percentage gain, it comes off an extremely low base leaving the sector operating at just 42.6 per cent of February levels,” said Benjamin Reitzes, Director of Canadian rates & macro strategist, at BMO in a note.

“Not all services sectors were higher, with declines in arts/entertainment/recreation (-2.9 per cent), government (-1.8 per cent) and management (-0.1 per cent).”

Reitzes says the entertainment sector will faced continued pressure but the restart of the NHL should help.

Despite the rebound in May, activity remained 15 per cent below February's pre-pandemic level.

Statistics Canada estimates real GDP for June increased 5 per cent.

“That said, early indications suggest second quarter GDP still averaged roughly 12 per cent (not annualized) lower than the first quarter, representing the largest drawdown on record by a long shot,” said Royce Mendes, senior economist at CIBC in a note.

“While such a decline was expected, it was worse than what was seen earlier in the week in the U.S. for the same quarter, as Canada enacted restrictions earlier and eased them less aggressively.”

Jessy Bains is a senior reporter at Yahoo Finance Canada. Follow him on Twitter @jessysbains.

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