By Theo van de Kletersteeg
Compared to other countries, Canada has generally done well in its handling of the Covid-19 crisis, from medical as well as socio-economic points of views. But how has it done economically? Fortunately, The Economist publishes a weekly survey of economic indicators as compiled by Hayer Analytics, supplemented by its own sources. Canadian Sailings will be analyzing these data on a quarterly basis, and will present its findings to its readers in 2021. To start off with, we have compared Q2 data for 2020 with Q2 data for 2019, as they were compiled for the 43 countries that The Economist reported on.
GDP growth
With the exception of China (+4.9 per cent), not a single country on the list enjoyed positive GDP growth. The economies of India (-23.9 per cent) and Peru (-30.2 per cent) contracted the most during the quarter. Canada’s economy contracted by 13.0 per cent, and failed to measure up to the performance of Asian Tigers (Taiwan -0.6 per cent, South Korea -2.8 per cent, Singapore -7.0 per cent) and the U.S. (-9.0 per cent), but far surpassed the performance of most European economies. Britain’s economy contracted by 21.5 per cent.
In addition to comparing Q2-2020 with Q2-2019 numbers, we have also compared Q2-2020 growth rates with Q2-2019 growth rates. (The growth rates reported for Q2 of 2019 compare growth rates against Q2-2018 performance). Again, except China which registered a decrease in GDP from 6.2 to 4.9 per cent, and the Asian Tigers, all other nations suffered dramatic setbacks ranging from drops of 10 to 30 per cent. Canada declined from a 1.6 per cent growth rate in 2019 to a 13.0 per cent contraction rate in Q2 of 2020.
Unemployment rates
Surprisingly, overall unemployment rates did not change dramatically, although there were significant changes in several countries. For example, unemployment rates in Peru jumped from 4.6 to 15.5 per cent, in Chile from 7.2 to 12.9 per cent, and in the Philippines from 5.4 to 10.0 per cent. In Canada, rates increased from 5.7 to 9.0 per cent
Current account balance
Investopedia defines the current account balance as the positive or negative balance of a nation’s transactions with the rest of the world—specifically its net trade in goods and services, its net earnings on cross-border investments, and its net transfer payments—over a defined period of time, such as a year or a quarter. A positive balance generally reflects a healthy economy with more cash coming into the country than leaving it.
Surprisingly, although a number of nations saw wide swings in their current account balance, most did not. Canada swung from a deficit of 2.5 per cent of GDP in Q2 of 2019 to a deficit of 2.1 per cent of GDP in Q2 of 2020. The Netherlands swung from a positive balance of 9.7 per cent to 5.8 per cent, still positive, but a dramatic drop. Norway plunged from a 7.1 per cent surplus to a surplus of only 1.8 per cent.
Budget balance
Investopedia defines a balanced budget as a situation in financial planning or budgeting where total expected revenues are equal to total planned spending. A balanced budget occurs when revenues are equal to or greater than total expenses. Governments must make up budget deficits through raising taxes, increasing the money supply or borrowing, or a combination of these.
Whereas in 2019 twelve of the countries covered by The Economist’s survey were operating at budgetary surpluses, in 2020 ALL are operating with budget deficits which in most cases are dramatically higher than the deficits that occurred in 2019. The U.S. swung from a deficit equivalent to 4.7 per cent of GDP in Q2 of 2019 to a deficit of 15.3 per cent of GDP in Q2 of 2020. Canada went from a deficit of 0.9 per cent of GDP to a deficit of 13.0 per cent of GDP. Of the surveyed countries, Britain is currently the nation operating with the largest budget deficit, 18.9 per cent of GDP. China’s budget deficit is currently 5.6 per cent, relatively high by 2019 standards, but modest compared to 2020 standards.
Takeaways
Canada’s economic position is somewhere in the middle of the pack, measured exclusively by these rather simplistic numbers. The position of the U.S. is most worrisome, sliding from large deficits in trade and budgets as well as the current account balance, to supersized budget deficits and debt. Europe too appears to be digging a big hole for itself. The redeeming feature for the U.S. relative to Europe is that while Europe’s economy is generally moribund, if the U.S. were to put its mind to it, it has the ability to revive itself as the leading global innovator, regaining lost ground.
Canada continues to depend heavily on trade with the U.S. and, increasingly, on trade with China, which has been sputtering lately. With domestic support for Canada’s energy industry waning, it is becoming increasingly apparent that this country needs a national economic plan to identify the industries it wishes to encourage. Covid-19 has wreaked havoc with the country’s finances, making it incumbent on our government to restore prudent financial management as soon as possible. We have survived the first six months of the pandemic in relatively decent shape, but not nearly in the same shape as the Asian Tigers, our competitors. We cannot allow our competitive position to slip further, so let’s get to work.
Tables
The following page displays a table of summary stats for the second quarter of 2020, as compiled by The Economist.
| Country | GDP growth Q2 – 2020 | Unemployment rate July/Aug 2020 | Current account % of GDP | Budget balance, % of GDP |
|---|---|---|---|---|
| Argentina | -19.1 | 13.1 | 2.2 | -10 |
| Australia | -6.3 | 6.9 | 1.3 | -7.6 |
| Austria | -14.3 | 5 | 1 | -7.4 |
| Belgium | -14.4 | 5.1 | -1.6 | -9.6 |
| Brazil | -11.4 | 13.8 | -0.7 | -15.7 |
| Britain | -21.5 | 4.5 | -1.5 | -18.9 |
| Canada | -13 | 9 | -2.1 | -13 |
| Chile | -14.1 | 12.9 | 0.2 | -10 |
| China | 4.9 | 3.8 | 1.7 | -5.6 |
| Colombia | -15.5 | 16.8 | -4.6 | -8.8 |
| Czech Republic | -10.8 | 2.8 | -1.3 | -6.6 |
| Denmark | -7.6 | 4.9 | 10 | -6.3 |
| Egypt | -1.7 | 9.6 | -3.4 | -9.4 |
| Euro area | -14.8 | 8.1 | 2.2 | -9.2 |
| France | -18.9 | 7.5 | -1 | -11.3 |
| Germany | -11.3 | 4.4 | 5.4 | -7.2 |
| Greece | -15.3 | 16.8 | -2.9 | -7.5 |
| Hong Kong | -9 | 6.4 | 4.4 | -5.8 |
| India | -23.9 | 6.7 | 0.9 | -7.8 |
| Indonesia | -5.3 | 5 | -1.1 | -7.1 |
| Israel | -6.7 | 4.9 | 3.4 | -10.4 |
| Italy | -18 | 9.7 | 2.6 | -11.6 |
| Japan | -9.9 | 3 | 2.5 | -10.6 |
| Malasia | -17.1 | 4.7 | 0.5 | -8 |
| Mexico | -18.7 | 3.3 | 0.4 | -4.5 |
| Netherlands | -9.4 | 3.8 | 5.8 | -5.4 |
| Norway | -4.7 | 5.2 | 1.8 | -0.9 |
| Pakistan | 5.8 | -1.3 | -8 | |
| Peru | -30.2 | 15.5 | -0.8 | -9 |
| Philippines | -16.5 | 10 | 0.9 | -7.9 |
| Poland | -8 | 6.1 | 0.5 | -9.3 |
| Russia | -8 | 6.3 | 1.8 | -4.3 |
| Saudi Arabia | 9 | -4.7 | -10 | |
| Singapore | -7 | 2.8 | 18.5 | -13.6 |
| South Africa | -17.1 | 23.3 | -2.3 | -16 |
| South Korea | -2.8 | 3.6 | 3 | -5.8 |
| Spain | -21.5 | 16.2 | 0.5 | -12.3 |
| Sweden | -7.7 | 8.3 | 4.7 | -4.1 |
| Switzerland | -8.3 | 3.3 | 9.8 | -4.9 |
| Taiwan | -0.6 | 3.8 | 12.3 | -1.5 |
| Thailand | -12.2 | 1.9 | 3.1 | -6.4 |
| Turkey | -9.9 | 13.4 | -4.1 | -5.6 |
| USA | -9 | 7.9 | -2.2 | -15.3 |