Canada’s economy shrank by 9% in March, according to a flash estimate published by Statistics Canada on  April 15. The decline, StatsCan said, is the most severe since the series first began in 1961. March, as a result would drag down growth for the entire first quarter to -2.6%. The government agency normally only releases GDP figures two months after the last reference date. Given the rapid economic downturn, however, StatsCan felt it was necessary to release an estimate that it warns isn’t of the “same quality” and will change when the full numbers are released in May.

The sectors that have struggled most in the economic shutdown are travel and tourism along with any related industries that fall within that wider umbrella such as restaurants, accommodation and personal transportation. Other notable declines were seen in retail, entertainment and sporting events. StatsCan did not publish numbers detailing the damage.

StatsCan said some sectors were still able to grow throughout the downturn, pointing to food distribution, health, online retailing and streaming. The oil and gas sector may have been struggling with historically low crude prices and plunging stocks, but StatsCan said both extraction and transportation remained stable during the month and did not appear to be substantially impacted.

Historic declines aside, March may only represent the tip of the iceberg. The Conference Board of Canada’s provincial economic outlook suggests the economy will contract 25% over the second quarter. This decline, a record should it come to pass, would set Canada on pace for a 4.3% GDP decline in 2020.

“Physical distancing requirements as well as the closure of non-essential businesses have brought a large portion of the economy to a standstill,” said Alicia Macdonald, associate director, economic forecasting, at The Conference Board of Canada wrote in a published report. “As a result, every province has fallen into recession.”

Because it’s dealing with social distancing measures and the collapse of oil prices, Alberta’s economy would be the worst performer of the provinces and contract by 5.8%, the report said. Saskatchewan would also be subject to a 5% decline in GDP because of weakness in the mining industry. The report forecasts that each of the other provinces will see GDP fall between 3.0% and 3.9%.

IMF Economy Forecast
The International Monetary Fund predicted the “Great Lockdown” recession would be the steepest in almost a century. The IMF forecast that the global economy will contract by 3% this year, and advanced economies by more than 6% – and warned that the damage will be even worse if COVID-19 persists longer than expected. 

The IMF’s new World Economic Outlook, published April 15, projected that Canada’s economy would shrink by 6.2% this year, before rebounding by 4.2% in 2021. It predicted that the global economy would grow by 5.8% next year – based on an assumption that “the pandemic fades in the second half of 2020 and containment efforts can be gradually unwound.”

“There is extreme uncertainty around the global growth forecast,” the report said. The international finance agency calculated that if the COVID-19 measures taken around the world linger for 50% longer than assumed in its base-case forecast, global GDP would shrink by an additional 3% this year. And it estimated that if there were a second breakout of the virus in 2021 – similar to what occurred with the Spanish influenza pandemic in 1918 and 1919 – then global GDP would end 2021 nearly 5% lower than in the base-case forecast.

“Many countries face a multi-layered crisis comprising a health shock, domestic economic disruptions, plummeting external demand, capital-flow reversals and a collapse in commodity prices,” the IMF said. “Risks of a worse outcome predominate.”

If both a longer shutdown in 2020 and a global relapse in 2021 were to occur, the IMF estimated that the world economy would end 2021 “almost 8%” below its base projection. And it said this figure may underestimate the risk of potential damage, should both occur.

“The prospect of additional increases in public debt, above a baseline that already sees notably higher public debt, could spook markets. This increase in sovereign borrowing costs, or simply fear of it materializing, could prevent many countries from providing the income support assumed here,” the report said. “This would lead to even worse outcomes and additional scarring, which would in turn further worsen public balance sheets.”

The IMF called on a joint international effort to fight both the health and the economic challenges from the pandemic. “Strong multilateral co-operation is essential to overcome the effects of the pandemic, including to help financially constrained countries facing twin health and funding shocks, and for channelling aid to countries with weak health care systems. Countries urgently need to work together to slow the spread of the virus and to develop a vaccine and therapies to counter the disease. Until such medical interventions become available, no country is safe from the pandemic (including a recurrence after the initial wave subsides) as long as transmission occurs elsewhere.”

Source: Globe & Mail
Source: Financial Post
Source: Globe & Mail
Source: Financial Post