CIBC report likens economy’s performance amid COVID-19 to shampoo bottle: “shutdown, reopen, repeat”

A senior economist with CIBC Capital Markets has a lather interesting way of describing Canada’s economic activity during this pandemic.

Royce Mendes compares it to a typical activity in the shower.

“The Canadian economy has been through a lot over the past six months, but the steps followed were as simple as those on the back of a shampoo bottle: shutdown, reopen, repeat,” Mendes wrote in a report Tuesday (June 1).

Mendes reported that the economy “made solid progress” in the first quarter of 2021, advancing 5.6 percent.

However, “another blow was dealt in April in the form of another round of shutdowns”.

“The pronounced weakness likely means that momentum completely stalled in the second quarter,” Mendes wrote.

But there’s something to look forward to.

As Mendes wrote, “That said, with vaccinations ramping up and Covid cases falling across the country, many provinces are in the early stages of reopening again, suggesting that the pitstop in the second quarter will be short lived and the economy will be back to the races in the third quarter.”

In his report about the first quarter, the CIBC economist noted that housing covered “weakness in other categories” of the economy.

“Quarterly GDP by expenditure growth in the first quarter was driven by housing,” Mendes stated.

In particular, “Investment in residential structures grew a whopping 43% annualized, with both housing construction and resales red hot during the period.”

However, “There are signs that some of that momentum is slowing down though, particularly with the building costs rising so much lately.”

To recall, Canada was hit with a second wave of COVID-19 infections in December 2020 and the following January.

As the pandemic eased somewhat, provinces began relaxing restrictions in February and March.

Then a third wave hit around April this year.

Mendes wrote that the “pronounced weakness” resulting from the third wave possibly means that the economy’s momentum “completely stalled in the second quarter”.

For the CIBC economist, there are reasons for optimism.

He explained that “with many Canadians set to get a second dose of vaccine in the months to come, Covid cases falling, and provinces beginning to reopen, there's sunshine on the horizon”.

“As we've seen during past reopenings, the economy can rebound quite quickly following bouts with Covid,” Mendes wrote.