The shock of COVID-19 (coronavirus), the rail blockades and a collapse in oil prices is putting Canada on the brink of a recession, according to a report released Tuesday by the Conference Board of Canada.
The Canadian Outlook Executive Summary – Spring 2020 said economic growth will contract by a projected 2.7 per cent in the second quarter of this year and overall growth of just 0.3 per cent in 2020 is expected followed by a rebound to 2.5 per cent growth in 2021.
“Despite the fact that the global economy is currently shaken at its core, we expect to see growth resume in the third quarter, meaning that the economy will avoid a technical recession,” said Matthew Stewart, Director Economic Forecasting at The Conference Board of Canada. “However, due to the unpredictability of the coronavirus, there are still huge downside risks to the outlook.”
The report said the Canadian economy is reeling as the impacts of the COVID-19 pandemic ravage consumer and business spending and cratering oil prices have put a halt to the expected rebound in the energy sector.
“The economy came to a near-halt at the end of last year. Growth has not been much better in the first quarter and is set to contract in the second . . . Exports and non-residential business investment are expected to fall this year. The Bank of Canada has responded to the deteriorating economic outlook in an unprecedented way. In a period of just over one week, the Bank slashed its overnight rate by 100 basis points,” said the board.
“Lower interest rates will throw more fuel onto the fire that is Canada’s housing market, leading to a strong increase in resale home prices and residential investment this year. Encouragingly, given the historically tight labour markets and the short-term nature of the economic shocks, businesses are expected to retain workers as much as they can, and employment should recover along with the economy.”
Facing low prices, oil producers are expected to reduce their investment spending and scale back production across Western Canada until the fourth quarter of 2020, said the report.
“The past winter drilling season was an improvement over last year, but we expect most conventional drillers will shut down activity at wellheads until prices shore up.”
With COVID-19 on the landscape, a disappointing start to the year will give way to back-to-back quarterly contractions, said a quarterly economic forecast by TD Economics.
“To make matters worse, now there’s Saudi Arabia’s scorched-earth approach of flooding the market with oil supply when demand is already quite weak. Plummeting prices generate a significant income shock on Canada that is particularly impactful in the second quarter,” said the report.
“This combination of events is set to disrupt growth over the entire first half of the year. Accordingly, we’ve
downgraded our 2020 outlook to just 0.2 per cent (from 1.6 per cent in our December forecast). If realized, this would be
the slowest pace since 2015. As discussed in our Chief Economist’s latest client note, only time will tell if virus-containment measures bleeds into the third quarter to take a technical recession into a formal one.
“This forecast hinges on a critical assumption that the worst of the impacts are resolved by mid-year. A recovery thereafter sets up a stronger hand-off into 2021 that results in a 2.1 per cent pace for that year. However, this forecast is subject to a particularly high level of uncertainty given the nature of events and unprecedented mitigation action being taken by governments and businesses.”
