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Why 2020 was the worst year for the economy on record

Jessy Bains
·2-min read
Toronto, ON- January 19  -  The Roy Public House has been closed since the indoor dining lockdowns in the fall. The signs on the windows point to the provincial governments handling of the pandemic.  Ontario faces stricter restrictions to slow the spread of the COVID-19 pandemic in Toronto. January 19, 2021.            (Steve Russell/Toronto Star via Getty Images)
Many small businesses remain closed due to COVID-19 restrictions (Getty)

You’ve probably heard people say that 2020 was the worst, but it really was for the economy, due to the effects of the COVID-19 pandemic

New data from Statistics Canada show real gross domestic product shrank 5.4 per cent in 2020, for the worst year on record since tracking began in 1961.

Despite lockdowns, the economy started looking up to close out the year.

“Canada’s economy was continuing to warm up as we turned the corner into a new year, even if the start of 2021 doesn’t look quite as boomy as we saw south of the border,” said CIBC World Markets chief economist Avery Shenfeld.

“The economy advanced at a consensus topping 9.6% annualized rate in the last quarter of 2020.”

Key growth drivers include business inventories, increases in government final consumption expenditure, business investment in machinery and equipment, and housing investment.

Statistics Canada notes housing investment increases coincided with low mortgage rates and rising demand for housing.

With much of the country locked down and nowhere to go, household spending was down 0.1 per cent in the fourth quarter, after a 13.1 per cent increase in the third quarter. Spending was down 6.1 per cent in 2020, compared to 2019.

An early estimate points to a 0.5 per cent GDP increase in January.

"Due to the sunnier start to the year, as well as a strengthened outlook for U.S. growth and strong commodity markets, we are boosting our view on 2021 growth by a full percentage point to 6 per cent while also shaving 2022 by half a point to a still-solid 4 per cent," said BMO chief economist Doug Porter.

"The Canadian economy has not posted 6%+ growth since 1974."

The flip side of shutdowns is that savings rates are way up. In the fourth quarter, it was 12.7 per cent and 14.8 per cent for all of 2020 compared to 1.4 per cent in 2019. Porter says this is one of the reasons for his more upbeat outlook.

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

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