The Canadian economy is likely in its deepest recession in at least six decades and will only recover modestly over the coming year as it takes a direct hit from the coronavirus outbreak and a collapse in oil prices, a Reuters poll of economists showed. After the economy contracted sharply in March and lost a record 1.01 million jobs, economists have slashed back their economic forecasts.

In the April 23-28 Reuters poll of 25 economists Canada’s economy was predicted to have contracted at an annualized rate of 9.8% last quarter and to shrink 37.5% this quarter. The somber outlook was despite the Bank of Canada’s buying up to $10 billion of corporate bonds and $50 billion of provincial bonds as part of its newly launched quantitative easing program — alongside hundreds of billions of dollars in government spending to support business and households.

Although the economy was predicted to bounce back and expand by a median 19%  and 11% in the third and fourth quarter respectively, all but one of nine economists responding to an additional question said the risk to their second-half forecasts was skewed to the downside. Despite that rebound the economy was expected to contract 5.7% this year, the first annual contraction since the 2008-09 recession. 

The median worst-case scenario, based on a lower sample, predicted a contraction of 50% this quarter and 10% this year. “The length of the recession is key. The longer the recession, the greater the capital destruction will be, unfortunately, making the recovery softer. We hopefully won’t get to the point where fiscal and monetary policy reach limits,” said Sebastien Lavoie, chief economist at Laurentian Bank.

Asked about the shape of Canada’s economic recovery, over 55 per cent of nine respondents said it would be a U-shaped recovery and one-third said it would be tick-shaped. That was in line with BoC Governor Stephen Poloz’s recent statement that the economy would take “a couple of years” to make up lost ground once the pandemic is over.

“Overall, due to the lasting damage of the disruption, we think GDP will remain below its late-2019 level until early 2022. We do not see GDP returning to its pre-2020 trend path within the next few years,” said Stephen Brown, senior Canada economist at Capital Economics.

Inflation was expected to remain around 0.5% in the coming quarters, well below the central bank’s target of about 2%. “We assume it will be a long, slow recovery with many businesses closing and structural changes likely with businesses changing the way they operate…” said James Knightley, chief international economist at ING.

“Will people want to return to busy restaurants or shops? This uncertainty means we doubt the recovery will be swift.”

New Data from Statistics Canada
According to Statistics Canada, economic growth in Canada stalled in February ahead of the collapse in March due to the COVID-19 pandemic. The agency said real gross domestic product was essentially unchanged for the month as it was hit by teacher strikes in Ontario and rail blockades across many parts of the country. Excluding these two sectors, Statistics Canada said the economy would have grown 0.2% in February.

TD Bank senior economist Brian DePratto said the February data offers a chance to reflect on how quickly the pandemic has changed things. “Real estate has gone from running hot to virtual stasis in less than a month’s time, and the necessary hit to sectors like accommodation and food services and arts, entertainment and recreation will be historically unprecedented,” he wrote in a brief report. “Fortunately, with economic re-opening plans starting to take shape across the country, there is a little bit of light beginning to form at the end of the tunnel.”

Overall, 13 out of the 20 sectors tracked by Statistics Canada increased in February. Goods-producing industries edged up 0.1% for the month. Real estate agents and brokers saw an increase of 5.9% in February, the largest uptick since December 2017.

Royal Bank senior economist Josh Nye said April is expected to show a sharp decline as the measures taken to slow the spread of COVID-19 will have been in place for the entire month. A survey from Statistics Canada on April 29, suggested that more than half of Canadian businesses have seen a drop in revenue of at least 20%, while nearly a third have seen a drop of 40% or more.

The official estimates of GDP for March and the first quarter of 2020 will be released on May 29.

Source: Toronto Star
Source: Financial Post