OTTAWA, ON (September 3, 2020): For the first time since February, the Macdonald-Laurier Institute’s Leading Economic Indicator posted positive growth, suggesting that the economy is entering into a recovery phase.
Comprising of 10 components, the LEI is a tool designed to predict Canada’s future economic growth and track changes within Canada’s business cycle. Rising by 0.3 percent, this latest LEI update reflects data from July and is a reversal from a negative trend that began with the introduction of COVID-19 lockdown measures.
“These numbers are positive, and while that is of course better news than what we have become accustomed to, the economy has a long way to go to erase the damage caused in the second quarter of 2020,” explains LEI author and MLI Munk Senior Fellow Philip Cross.
“Even accounting for July’s positive numbers, the LEI is still seven points into the red when compared to the pre-lockdown period.”
The rise in the LEI was primarily driven by improvements in the housing market, and the trend reversal is broadly consistent with the recovery or output and employment seen in the summer. However, Cross warns that the economic situation facing Canada is still concerning. Of the LEI’s 10 components, only three rose in July, indicating that Canada’s tepid growth is very narrowly-based.
“The economy remains weak, particularly given low consumer confidence and uncertainty in the service sector and US economy,” notes Cross. “For a recovery to be sustainable, we would expect to see more broad-based improvements in some of the harder-hit sectors of Canada’s economy.”
Though nearly half of the jobs lost at the peak of the pandemic have been recovered, the recovery has been remarkably uneven. For some industries, the recovery might appear to be more “V-Shaped” whereas for too many sectors, the recovery is distinctly “L-Shaped.”
“Ultimately, any good news should be welcome,” says Cross, although “policy-makers would do well to note that the road to economic recovery remains long and uncertain.”
To learn more about the leading economic indicator, click here.
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