Data released on Friday showed the Canadian economy contracted further in May. Analysts at CIBC point out containment measures necessary to curb the third wave of COVID-19 took a further toll on the economy in May, but the relaxation of those restrictions saw activity rebound sharply in June.

Key Quotes: 

“With virus cases generally low across the country, the economy has some open road to recover even more ground this summer. However, the Bank of Canada won’t be in any rush to pull forward the expected timing of rate hikes with challenges remaining, most notably in the form of variants of the virus which are already slowing the healing process in other developed economies.”

“The Canadian economy already began that process with a comeback in June coinciding with falling new Covid cases and the relaxation of restrictions. The flash estimate, which pointed to 0.7% growth, was roughly in line with what we had penciled in and puts the quarterly growth rate bang on our forecast of 2.5% annualized, a touch hotter than the Bank of Canada’s 2.0% forecast.”

“A solid handoff to the third quarter from the strong rebound in June leaves the economy in a position to post a lofty growth rate during the period, so long as momentum doesn’t tail off too much in the coming months. While we do see growth slowing later in the year, the rest of the summer should see the economy make solid progress, given the low numbers of new infections and the ongoing reduction of public health measures.”