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The October GDP advance of 0.4%, while a slowdown from the September gain of 0.8%, was better than the consensus expectation, point out analysts at CIBC. They see that even with the GDP advance in October and the one expected for November, the economy is still in a deep hole.

Key Quotes: 

“Data on October and November suggest that the economy was in a slightly better position than anticipated heading into what is shaping up to be a difficult period. Any optimism about the economy’s performance in the lead up to December will likely be tempered by the latest rounds of restrictions that, in many cases, now stretch into January. The soft handoff to the new year will mean that the first quarter of 2021 will likely struggle to post any growth, and is clearly in danger of losing noticeable ground depending on whether further restrictions will be necessary.”

“Even with the GDP advances in October and November, the economy is still in a deep hole. As of November, it appears that GDP was roughly 4% below its pre-Covid peak. To put that in perspective, that shortfall is not far off from the drawdown seen at the trough of the 2008-09 financial crisis.”

“The fact that GDP growth is holding up in the fourth quarter might not come as much solace, as rising Covid cases and the necessary public health response will make it more difficult for the economy to keep its head above water in the first quarter of 2021. Still, if officials can begin easing restrictions, or at the least not have to tighten them further, growth could begin to reemerge not long after, and hopefully there’s no looking back this time.”