RBC Economics is forecasting a 2.5 percent drop in Canadian GDP for the year, including a decline in second-quarter that will likely dwarf any other drop since at least the 1960s.
“Unemployment rate will rise to 10 percent as soon as April”
In a report, it said the unemployment rate will rise alongside the rate currently probably already 10 percent, peaking north of 11 percent on a monthly basis, perhaps reaching that level as soon as April.
“Social distancing, which all experts assure is a necessary action to save lives and prevent the spread of COVID-19, represents an unprecedented economic shock for all countries. Many of the service-sector industries that typically act as an ‘economic buffer’ in a recession will be dramatically impacted by social distancing,” said the report.
“The drop in service sector activity and the oil price shock, combined with ripples from slower global demand and supply-chain disruptions that will hit the industrial sector, means we are headed for a period of unprecedented softness in economic activity. Some of that lost activity will bounce back relatively quickly when schools and other businesses reopen. And the more that can be done from a policy perspective to bridge-the-gap and get workers and businesses through the coming months, the quicker the growth bounce-back could be. But the reality is that with the duration of the virus’ impact unknown and ongoing fear of a recurrence of the outbreak, a return to ‘normal’ is unlikely to occur quickly.”
“Social distancing efforts are shutting down wide swaths of the service-sector”
The report said social distancing efforts are shutting down wide swaths of the service-sector. By RBC’s count, the sharp fall in activity in just five industries, education, retail trade, accommodation & food services, and arts & entertainment alone could produce a drop in GDP that rivals the record economy-wide plunge recorded in 2009 of 8.7 percent.
“Falling global demand disrupted supply chains, and lower global oil prices will see goods-producing sectors slump as well. Absent a dramatic and unexpected easing in the spread of the virus, the Canadian economy is headed for a double-digit decline in GDP in the second quarter of this year. We are now pencilling in an 18 percent drop in Q2 GDP. This could underestimate the decline if the number of new virus cases does not begin to ease relatively quickly.”
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