The good health of the Canadian real estate market saved the year. The economy expanded strongly in the last quarter, growing by 9.6% year-on-year and by 2.3% compared to the third quarter of 2020. This rebound, which was much stronger than expected, was due to increased demand for housing, which boosted real estate investment at a time when interest rates are low. "From 2019 to 2020, real estate investment increased by 3.9%, while household debt in the residential mortgage market increased significantly over the same period," reports Statistics Canada.
Other strong support came from government spending, which remained strong in the last quarter, while businesses rebuilt their inventories. The trend is expected to continue in the first quarter of 2021 and economic activity, despite the various health measures, is expected to be positive in the first three months of 2021.
Worst performance since 1961
For the year 2020, the picture is much less rosy as it is the worst performance ever recorded by the country. The Canadian economy contracted by 5.4%, due to the impact of the coronavirus pandemic (871,587 cases for 22,036 deaths), after growing by 1.9% in 2019. This is worse than its big neighbour, the United States, whose economy shrank by only 3.5%.
The US, which is benefiting from an effective vaccination campaign and probably soon from a massive new stimulus package as soon as it is passed by the Senate, should rebound strongly this year. The Congressional Budget Office has estimated 4.6% growth for the current fiscal year.
For its part, the Bank of Canada is forecasting 4.7% growth for the Canadian economy in 2021. But the resilience of the end of the year has convinced analysts who are beginning to revise upwards their growth estimates for 2021, between 5% and 6%. This is especially true since the Trudeau government is considering a three-year C$70 billion to C$100 billion stimulus package, which will be unveiled in the House of Commons in March or April.
High disposable income and savings
As a result of the extraordinary government support measures, Canadians' disposable income has increased by 10% over 2019. This is the "strongest increase in nearly four decades", according to Statistics Canada. Domestic demand, on the other hand, fell by 4.5%. While the savings rate fell from 27.8% earlier this year to 12.7%, it remains high and points to a recovery in consumption.