Canada’s economy which shrank by 5.4% in 2020, is now showing surprising strength as companies have massively increased their stocks in anticipation of a strong recovery this year. The gross domestic product (GDP) grew at an annualized rate of 9.6% in the fourth quarter, much faster than the median forecast of 7.3% and can be seen as a combination of strong household fundamentals, an impending rebound in job growth and resolute fiscal support, while the Pandemic and the wave of lockdowns are considered to be well managed. Some major banks are already revising their growth forecasts to 6% and even more for 2021.
The biggest contributor to this rise was made by companies rebuilding their inventories strongly which helped offset a very weak end of the year for consumer spending, amid a wave of Covid-19 restrictions. Consumers have been hoarding cash which will be a strong base for demand and future growth. Other major contributors to growth at the end of last year included government consumption and housing investment, driven by a hot real estate market.
These trends are undermined and are likely to be sustainable as international investors have recently rediscovered Canada and their appetite for Canadian stocks. With signs of a post-pandemic economic boom building by the day, a big shift toward economically sensitive sectors, such as natural resources and financials, is taking place across stock markets around the world. Suddenly, Canada’s heavy weighting in banking and commodities has turned from a weakness to a strength. The inflow of foreign investor capital created the sharpest spike in net foreign inflows into Canada in more than five years; it started to build up in the fall and culminated in December with a total of $6.4 billion pumped into Canadian listings.