The whole world will be heading for a major economic recession or depression or a great depression, not just Canada.
Also, Canada may face a historic downturn, struck by the global pandemic and fueled by issues that were already lingering the economy. In short, there will be an increase in the cost of living that is set to rush and Canada will not be immune.
Canada, like nearly every other nation on the planet, has put its economy into an induced coma as it attempts to fight off the invading COVID-19 virus. Offices, factories, stores and restaurants are closed and workers have been ordered to stay home, many without paycheques, some unsure whether their jobs will still exist when the crisis abates.
With each day bringing new tales of horror from infested medical workers and harsher measures by governments to contain the virus, economists have snarled to notch down their growth forecasts. At the Big Five banks, the average forecast among economists as of the end of March was for Canada’s economy to shrink by nearly 23 per cent in the second quarter on an annualized basis. (Less than two weeks earlier, they had predicted the decline would be half that bad.) Others forecast an even deeper drop of almost 35 – 40%.
A record of 1 (one) million Canadians applied for unemployment insurance in just one week in March. Officials are bracing for 4 (four) million applicants when Ottawa’s newly created Canada Emergency Response Benefit (CERB) launches on April 6.
During this COVID–19 period, everywhere, there is a burning question of whether Canada will endure a recession? and instead, now asking is: How bad will it be? how long it will last? and, possibly most significantly, what is coming for us afterwards? But – “All we can say with any certainty right now is we’re facing a true economic abyss in the second quarter,” says economist David Rosenberg of Rosenberg Research in Toronto. And to some extent “It’s going to look like the kind of economic decline we saw in the 1930s.” The good news is if the same term can be used for the aggressive steps taken by central banks and governments to tackle the downturn in the financial crisis of the type we saw in 2008 or the 1930s, The same goes for the Bank of Canada, which slashed its overnight rate from 1.75 per cent to 0.25 per cent in the span of 23 days, while setting out to buy tens of billions worth of securities, like government bonds and corporate debt, in an effort to maintain liquidity in the market and keep credit flowing. The monetary vents are pumping full speed.
At the same time, the federal government has promised massive sums of direct aid in the form of tax deferrals, loan guarantees and wage subsidies for small to mid-sized businesses. Altogether, Ottawa’s stimulation measures stood at more than $90 billion at the end of March, according to a Scotiabank economics report, or 4.5 % of GDP. Relative to the size of the economy, that’s three times more than Ottawa spent during the first year of the Great Recession.
Early in the crisis, experts’ opinion meant measures to slow COVID-19’s spread, like self-isolation and forced business closures, have stopped people from working and earning paycheques while decimating revenues for companies, but have not stopped the bills from piling up. And for that reason, it will take at least 6 months to a year to get everything back onto some basic footing, whatever that normal will look like now,” says Scott Terrio, manager of the consumer insolvency at Hoyes Michalos.
Time will tell if those measures are enough. The most optimistic view at this point is that self-isolation will bring the pandemic under control so that businesses can re-open and workers can begin to return to their jobs by this summer. “We believe the fiscal steps are enough to help propel the economy into a forceful recovery in the second half of the year,” Doug Porter, chief economist at BMO Capital Markets, stated in a report. In a March 27 forecast, BMO said growth would fall 25 per cent in the second quarter, followed by a 30 per cent jump in the third. Like a coiled spring, the theory goes, pent-up economic energy will quickly be released once the tension of the COVID-19 measures is eased.
But even if the economy reopens for business in relatively short order, there will still be a significant lag, says Stephen Brown, senior Canada economist at Capital Economics. He points to those parts of China where isolation orders have been lifted and people allowed to return to work. His firm’s daily activity measure for China, which tracks things like freight traffic, property sales and electricity consumption, is running at 80 per cent of capacity after 2nd wave of the COVID – 19 situation. “People are still worried about going outside,” he says. “Everyone is well aware there could be another outbreak and you might have to repeat the whole process again.” And that could be a significant adverse effect on the economy and policy as well.
If Canada’s economy rebounds sharply in the latter half of the year, Brown estimates GDP will still be 2.5 per cent below its pre-recession trend at the end of 2021.
(to be continued…)