The report said the economic cost of the COVID–19 crisis may pale in comparison to the human cost. But both will be substantial.
“Measures to contain the virus have upended supply chains and financial markets and weighed on commodity prices, creating a perfect storm for the Canadian economy. Given the hit to both the services and goods–producing sectors, we expect real GDP to contract at a greater than 30 percent annualized pace in the current quarter,” said the report.
“Underpinning our forecast is the assumption that the economy will be severely disrupted for about 12 weeks, with activity gradually returning to normal after that. Confidence bands around this assumption are extraordinarily wide. Claims for employment insurance have reportedly skyrocketed, consistent with the unemployment rate reaching close to 20 percent. If these conditions persist for longer than we assume, the impact on the economy will be amplified.
“Policies to address the crisis have been broad–based. The Bank of Canada lowered interest rates and announced other measures
to ensure borrowers have access to capital. Canada’s government unveiled aggressive packages aimed at preventing large–scale
business bankruptcies while keeping workers on payrolls. The ultimate success of these measures depends on the breadth and
duration of the crisis.”
The report said easing social distancing measures will alleviate some of the stress in the economy although persistently low oil prices will continue to weigh on growth.
“Oil prices are down $35 since the start of the year and are projected to average US$31 in 2020, just over half of 2019’s average price. This lower price environment will cut investment and result in permanent job losses. The impact will be felt disproportionately in the oil–producing provinces but will have spill–over effects across the country,” said RBC.
“The drop in oil prices has already had a marked impact on Canada’s dollar which lost 10 percent against the US dollar before recovering some ground to stand at about seven percent below its year–end level. Canada’s currency is likely to remain around 70 US cents in the near term as uncertainty about the depth and duration of the crisis sees investors gravitate to the safety of US dollars.”