Alberta’s economy is expected to suffer an 11.3% decline in 2020, the worst in the country, according to a new Conference Board of Canada report that projects the COVID-19 induced recession will hit Canada nearly twice as hard as the group initially thought. The last time that the board wrote an outlook report was near the height of the pandemic in April when the country was still shut down and economists’ forecasts were clouded by uncertainty. The organization estimated that Canada was heading for a 4.3% GDP contraction by the end of 2020. Four months later, it’s clear the damage will be much worse than initially thought as the board now says Canada is heading for an 8.2% GDP decline by the end of 2020.

“Initially, we thought this would last from March to perhaps June and July and in the second half of the year, the economy would be fully back to operating normally — this is not the case at all,” said Conference Board of Canada chief economist Pedro Antunes after publishing his latest projections Monday. “What we’ve come to realize is the economy will be operating well below (pre-pandemic) levels.”

The board’s province-to-province breakdown was similarly altered. In April, it did not foresee a GDP loss for any province hitting 6% — the projection of a 5.8% drop for Alberta was the highest. The only three provinces the board expects won’t surpass that number now are Manitoba, P.E.I. and B.C.

Alberta’s deeper decline is due to the “double whammy” of the lockdown and the crumbling of oil prices. West Texas Intermediate prices were hovering above US$50 in February before falling deep into negative territory. Crude prices have rebounded since but are still trading only around US$42. Other provinces that rely heavily on the oil-and-gas sector, namely Newfoundland and Saskatchewan, are in a similar position and the board expects them to lose 7.1% and 8.6% of GDP respectively.

“The outlook for oil prices over the next two years is quite pessimistic because of the impact on transportation which is a big user of oil,” Antunes said. “That affects profits and royalties the government will have to forgo, but the biggest impact … is the capital investment. Firms have cut down to the bare bones.”

Business investment is not expected to pick up again until Spring 2021. The stark decline in household spending won’t be corrected until 2022.

The board initially expected the downturns in Ontario and Quebec to result in GDP contractions of 3.2% and 3.8%, but those projections have now been revised to 7.6% and 7.2%. Quebec was the worst-hit province in terms of the total number of COVID-19 cases and deaths, but the damage to its economy would have been worse if not for the government’s decision to begin the reopening process earlier than others, the report said. The province’s crucial aerospace industry, in particular, may have a long wait ahead before it can fully recover. Air travel, the report said, likely will not return to normal levels until late 2021 or 2022.

For Ontario, it’s the automotive industry that’s troubled. The report estimates that auto sales plunged by close to 60% this year due to a drop off in exports to the U.S. The province’s recovery will continue to be tied to the U.S. and its ability to keep cases under control. If it cannot do so, Americans won’t exactly be flocking to car dealerships, the report said.

“Even with the rebound starting in the third quarter … it will take until the end of next year for the economy to return to its pre-pandemic level of output,” the report said.

Source: Financial Post