April 12, 2021

Q1 2021 market update: Has the economy started to recover?

The first quarter of 2021 was slightly positive for most major equity markets. Read on for our view of the global economy and financial markets in the first quarter.


  • Global stock markets made small gains over the quarter
  • Mass vaccination efforts may signal a gradual return to normal
    • Approximately 590 million COVID-19 vaccine doses have been administered globally, as of March 31. (Bloomberg)
  • Increased economic activity led to concerns about inflation

What happened in Canada?

A few highlights from Canada’s economy in the first quarter of 2021 include:

  • Canadian household debt-to-income ratio rose to 175% in the fourth quarter of 2020, up from 171% in the previous quarter. (Statistics Canada)
  • The Canadian unemployment rate fell to 8.2% in February 2021, its lowest level since March 2020, in response to the economy adding 259,000 jobs. (Bloomberg)
  • 40% of small businesses believe it will be at least another year before they return to profitability. (Canadian Federation of Independent Business “CFIB”)

Have economies started to turn around?

Canada made some progress with COVID-19 vaccinations in the first quarter of 2021. However, much of the economy remained closed during the quarter. As a result, business activity remained slow for much of Canada. In some areas, however, the virus spread slowed and restrictions began to ease.

Other countries around the world reported how strong their economies were in the fourth quarter of 2020.

  • The economies of Japan and China performed very well.
  • The U.S. economy also expanded.
  • The European economy was weaker.

The U.S. government introduced economic support worth about US$1.9 trillion in the first quarter of 2021. This support package included direct payments of US$1,400 to eligible Americans.

Most central banks left their interest rates unchanged. Why? They didn’t believe the pace of economic growth would lead to higher inflation in the short term. However, these central banks did say they were ready to act if inflation became an issue.

Financial markets edge higher

Global stock markets posted slight advances over the first quarter:

  • The three major U.S. stock markets rose to record highs.
  • The Canadian equity market rose as well. Strength in the health care and energy sectors contributed to that performance.
  • Markets also gained in much of Asia and Europe.

Oil prices moved higher in response to reduced inventory. Inventory was lower because global demand for oil rose while production of oil stayed at roughly the same level.

Gold prices declined over the quarter as demand for gold fell.

People appeared to believe the economy was ready to recover and that inflation would rise as well. Yields* rose on global government bonds. This rise in yields caused stock markets to become slightly more volatile.

(*“Yield” is the return achieved from a bond. This is based on that bond’s interest rate and the price paid for the bond.)

Canada’s economy is stronger

The Canadian economy grew since the latest period measured in the fourth quarter of 2020. The growth was not as strong as in the previous period. However, it was still better than economists had widely expected.

Here are some highlights:

  • Real estate. Rising investment in real estate and business contributed to Canada’s economic growth. Real estate and business activity were both strong despite new lockdown restrictions in much of the country.
  • Unemployment rate. Canada’s unemployment rate moved to its lowest level since March 2020 as the economy added many jobs.
  • Small business. Small businesses continued to struggle and many businesspeople believe they will not return to profitability until 2022.
  • Interest rates. The Bank of Canada (BoC) held its key interest rate at 0.25%. It also continued to buy bonds to support the economy. Late in the period the BoC said it may soon scale back bond purchases. The BoC believes the economy does not need this support as much it did earlier in the pandemic.
  • Inflation rate. Canada’s inflation rate rose during the quarter. This was largely because of rising oil prices. Demand from consumers also increased in Canada. This led to a small rise in how much debt households had compared to their income.
  • Long-term bond yields. The yield on long-term bonds issued by the Government of Canada moved higher. Markets appear to believe the economy will recover quickly. Markets also appear to be expecting higher inflation. This led to a decline in bond prices over the period.

What is the current economic outlook?

What can investors expect in the future? Here are some highlights on the major factors affecting the world and Canada’s economy:

Vaccine roll out With more people set to receive vaccinations in 2021, our global economic activity could grow stronger.
Job market The job market is also likely to improve as the economy strengthens.
Pandemic toll The global economy remains at risk because of the ongoing pandemic. The spread of new virus strains is causing concern.
Inflation rates Most global governments and central banks continue to support their economies while watching for signs of higher inflation. Higher inflation is generally not good for economic growth.
Consumer spending Economists are widely expecting a large increase in consumer spending in response to slowing the spread of the virus. Since the pandemic has caused much of the economy to close, many people have saved money. As the economy gets stronger, it’s expected that people will spend some of the money they’ve been saving. Increased spending by consumers should contribute to economic strength.
Interest rates

Interest rates in Canada remain very low. The Bank of Canada (BoC) will probably not raise its key interest rate in 2021. The central bank does not believe the Canadian economy will gain strength too quickly. They also believe raising interest rates could negatively impact the economy.

The U.S. Federal Reserve Board (Fed) appears set to hold its key interest rate near zero for some time. The Fed continues to watch inflation and employment numbers closely. It wants to see those numbers move closer to its target levels before raising its interest rate. The Fed also wants to give the economy more time to recover from the negative impact of the pandemic.

Consumer debt The amount of consumer debt in Canada remains high. The BoC has said it’s concerned about this level of debt. 
Oil prices Higher global demand for oil could continue to support the price of oil over the next quarter. Production is likely to stay at or near current levels over that time.
  • Want to learn more about investing? Our educational materials cover a range of topics to help you become a more informed investor. Here’s what you need to know.

This commentary contains information in summary form for your convenience. Although this commentary has been prepared from sources believed to be reliable, Sun Life can’t guarantee its accuracy or completeness. Plus, this commentary is intended to provide general information and should not be seen as providing specific individual financial, investment, tax, or legal advice. The views expressed are those of the author and not necessarily the opinions of Sun Life. Please note, any future or forward looking statements contained in this commentary are speculative in nature and cannot be relied upon. There is no guarantee that these events will occur or in the manner speculated.

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