The Canadian economy is recovering slower than its peers despite elevated inflation. BMO chief economist Douglas Porter indexed the GDP for Canada, the US, and Australia in Q3 2021. All three economies began as a v-shaped recovery, but Canada is the only one not to hit pre-pandemic levels. Despite signs of a strong economy, like low unemployment and rising inflation, Canada’s GDP is struggling to reach its pre-pandemic glory.
The US Had A V-Shaped Recovery and Has Nearly Fully Recovered
The US economy had a few hiccups over the past couple of years, but they managed a v-shaped recovery. At the depths of the pandemic, the country’s GDP managed a smaller contraction than Canada. As of Q3 2021, American output is 1.4% above the pre-pandemic level.
“Given that the US economy ‘normally’ grows by around 2% per year, the output is thus still a bit more than 2 ppts shy of fully returning to full capacity,” observed BMO.
Australia’s GDP Recovered Fastest But Is Now Pulling Back
Australia’s initial lockdown created a smaller economic pullback than Canada or the US have seen. The initial GDP contraction was less than 8 points from its pre-pandemic high. Output recovered above pre-pandemic levels before the US or Canada. However, renewed lockdowns in the third wave pulled output 0.2% below the pre-pandemic high. If the current momentum continues, Australia can end up with a w-shaped recovery. A w-shaped recovery is also known as a double-dip recession.
Canada’s GDP Has Yet To Recover To Pre-Pandemic Levels
Canada might have followed the same path as the US initially, but it’s now lagging in recovery. The initial contraction was over 12 points, making it the biggest of the three economies. Output is still 1.4% below the pre-pandemic highs, but BMO estimates October data will close the gap to 0.6%. Based on that, they estimate output is 3.5% to 4.5% below where the output would have been without the recession.
The difference in handling the pandemic is one factor here, but credit likely played a significant role. Both Australia and Canada have relied on household debt to grow their economy. It has created highly indebted households, making it hard to grow with more cheap debt. Countries with highly indebted households tend to see slower economic growth since more of their income is used to pay for previous economic growth.
