Canada’s Post-COVID Economy

Canada’s economic growth has shown promise and stability, despite the slower than expected rate of recovery from an extended pandemic shutdown, but investors should remain vigilant heading into 2022.

Economic growth was expected to be strong coming out of a widespread shutdown, and equities have yielded outsized gains, but several factors are generating inflationary pressure and it would be wise to expect some volatility and to soften expectations in the coming year. Oil prices have spiked – Western Canada Select (WCS) was up 104.1% in September 2021 compared to 2020, food prices are rising, and consumers are just starting to feel the effects. The economy growth is still hovering slightly below pre-pandemic levels, and is not likely to close that gap before early-to-mid 2022.

Rising Inflation Is A Hot Topic

The dramatic increase in expenses associated with restoring the supply chain are driving inflation, which reached an 18-year high of 4.4% in September, and at the same time disrupting domestic consumer spending. Third quarter GDP growth came at about 1.9%, under-performing against expectations, also due in large part to continued global supply chain difficulties.

Supply issues will likely continue to impact certain export manufacturers in the coming months, and prevent them from taking advantage of strong U.S. demand. The automotive industry in particular has suffered with semiconductor chip shortages, and retail sales declined from a lack of available goods. Adding to the drop in GDP was a disastrous year of severe drought for the agriculture sector.

If the supply chain pressures are resolved earlier than expected, and consumer savings and government stimulus continue to fuel the economy through the early months of the year, then Canada could benefit from stronger economic growth and transitory inflation. The effect of easing inflation would make Canada very competitive in comparison to the remainder of the world.

Interest rate hike forecasts vary, but will likely not occur until economic activity rebounds to at least pre-pandemic levels, which may not be until the third quarter of 2022. Delayed rate hikes would extend the country’s positive position in the world market. Outside of agriculture, commodity prices and demand are still positive and remain above the levels established before the pandemic.

High Vaccination Rates, Growing Employment, And Technology

Canada’s overall high vaccination rate (79.2% of the population have received at least one dose) is a positive factor in making it more resilient to weather future challenges, and labour markets are responding as businesses continue to reopen. Employment rates are steadily improving and household savings are rising as consumers await the resolution of supply chain issues.

As 2022 unfolds, the consumer staples sector – which can usually stand to raise prices to offset higher expenses – could see significant gains. Many of the larger retail companies in this sector, along with the big-box retailers, will benefit from shoppers who are eager to ramp up spending.

Changing market environments often dictate normal winners and losers, and during this current inflationary cycle, a few such as Energy and Utilities will likely be predictable winners. But Information Technology, which has historically struggled during periods of high inflation because of lower consumer and business spending, is riding a wave of extraordinary circumstances.

The work-from-home movement, online shopping, and e-learning driven by the pandemic shutdowns created an even more powerful dependence on computers and technology for everyday living, and made IT an integral part of the overall economy. Canada’s IT sector in general has been growing twice as fast as the rest of the economy in the last decade and now accounts for 5% of Canada’s GDP, while ICT exports exceeded US$10 billion in 2020. Consumer Technology growth, and increasing business investment in technology to remain competitive, could make this sector an outlier in the future.

The bottom line is, that as the world emerges from the effects of the pandemic, volatility for investors in the next year will likely be dependent upon by the recovery time of the global supply chain, and the impacts of inflation.


Paul P. Duong is the head of Campbell Consulting Group, Canada’s leading business advisory firm, a published authored, with experiences in advising company with cross culture M&A, and startup.

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