2020 was the worst year on record for Canada's economy. It shrank by 5.4%

Canada's economy shrank by 5.4 per cent last year, official data from Statistics Canada showed Monday, making 2020 the worst year for the country's economic output since record keeping began.

The data agency said Tuesday that Canada's gross domestic product the total value of all goods and services it produced grew by 2.3 per cent duringthe last three months of the year, but that was nowhere near enough to offset the record-setting plunge it experienced during the the middle half of 2020.

The drop for the year was due to the shutdown of large parts of the economy in March and April during the first wave of the COVID-19 pandemic.

But since the summer, economic activity has slowly and steadily grown.

For comparison purposes, Canada's economy contracted almost twice as much as the U.S. did during theCOVID-19 pandemic, despite the U.S.seeing far more cases per capita.

Preliminary data suggeststhe U.S. economy shrank by 3.5 per cent last year.

Growth slows to close out 2020

Statistics Canada says the economy grew at an annualized rate of 9.6 per cent in the fourth quarter of last year, down from an annualized growth rate of 40.6 per cent in the third quarter but still higher than what economists were expecting.

Financial data firm Refinitiv tabulates that on average, economists were expecting 7.5 per cent growth.

Despite the better-than-expected result for the quarter as a whole, GDPeked out a 0.1 per cent increase in December.

December's tiny gain was a slowdown from November's 0.8 per cent uptick.

All in all, Statistics Canada says Canada's economic output in December was still three per cent lower than what it was in February, before COVID-19 started.

Better forecasts for 2021

Looking ahead to January, Statistics Canada said its early estimate was for growth in the economy of 0.5 per cent.

"[T]hat solid advance landed right in the heart of the second wave restrictions and isin spite of a heavy drop in retail salesin the month," wrote Douglas Porter, an economist at the Bank of Montreal, in a note to clients.

He credits a big rebound in resource sector activity, a raging housing market, and strength in manufacturing, wholesale trade and even perhaps milder weather as reasons why the economy did so well in January.

Many Canadian economists are forecasting overall growth.

"Provinces are gradually relaxing restrictions, the vaccine rollout has quickened, and case counts have trended lower. This should support growth in February and March," wrote Sri Thanabalasingam, an economist at TD Bank, in reacting to the news.

"Looking ahead, the near-term picture is brightening."