Canada December retail sales slump 3.4% as COVID restrictions bite

By David Ljunggren

OTTAWA (Reuters) - Canadian retail sales slumped by 3.4% in December to C$53.38 billion ($42.37 billion), the biggest monthly drop since April, as COVID-19 restrictions forced many businesses to shut down, Statistics Canada said on Friday.

Analysts in a Reuters poll had on average, forecast a 2.5% decline in overall sales in December. Statscan revised November's gain up to 1.8% from an initial 1.3%.

The pain is likely to continue into January, since Statscan said preliminary data suggested sales had dropped 3.3%.

"For the next few months, while many restrictions remain necessary, consumption, particularly of services but potentially of goods as well, will still be constrained," said Royce Mendes, senior economist at CIBC Capital Markets.

Mendes though said the Statscan figures most likely overstated December's decline, since the data did not capture sales by many large online merchants.

December sales fell in nine of 11 subsectors, representing 83.6% of retail trade. In volume terms, they dropped 3.6%.

"With the resurgence of COVID-19 cases in Canada, provincial governments began to reintroduce physical distancing measures, which directly affected the retail sector," Statscan said. Around 15% of retailers were closed at some point in December.

The Canadian dollar held to a near four-week high of 1.2605 to the U.S. greenback, or 79.33 U.S. cents.

The Bank of Canada last month said the economy would contract in the first quarter of 2021 amid a resurgence of COVID-19 cases and lock downs.

"This (Statscan) report does not alter the outlook for a recovery in the second half of the year as vaccines allow a gradual return to normal while the economy benefits from fiscal and monetary stimulus," said Ryan Brecht, senior economist at Action Economics.

Overall, 2020 retail sales fell 1.4% from 2019, the largest year-on-year dip since the 2009 recession.

($1=$1.26 Canadian)

(Reporting by David Ljunggren, additional reporting by Fergal Smith in Toronto; Editing by Steve Orlofsky)

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