Country Economic Forecasts - Canada
Canada is in the midst of a severe recession. The economy has virtually shut down, paralyzed by measures to contain the coronavirus pandemic, free-falling financial markets, plunging oil prices and plummeting confidence. We have markedly downgraded our forecast for real GDP growth in 2020 to -1.1%, down from +1.4% pre-virus. Furthermore, we are in uncharted and rapidly changing territory, with an unusual degree of uncertainty, so the likelihood of future significant downgrades to our outlook is very high.234950119380Pandemic plunges Canada into a severe, but hopefully short, recession 00Pandemic plunges Canada into a severe, but hopefully short, recession The country has now entered an effective lockdown that we think will last through the summer. The border has been closed for non-essential travel, schools have shut down, and several provinces have declared a state of emergency and ordered the closure of all non-essential workplaces.Weak momentum from late 2019, initial coronavirus effects and some temporary factors likely led to a 0.6% annualized decline in Q1 GDP. However, the very recent and sudden stoppages across Canada are expected to result in a sharp 11.6% drop in Q2 GDP. Furthermore, the fall in Q2 GDP could be even more dramatic. Consumer confidence collapsed a record 32 points in March and claims for Employment Insurance (EI) reached an unprecedented 929,000 level, foretelling huge job losses.We expect a strong bounce back in Q4, once lockdowns are lifted, boosted by extraordinary fiscal and monetary stimulus. We have incorporated the federal government’s “first phase” fiscal response totalling C$82bn (3.5% of GDP), and, while we welcome the recent upsizing to C$107bn (4.6% of GDP), much more is required. 254000910590Strong economic rebound expected in Q4, once the lockdowns are lifted, supported by extraordinary fiscal and monetary stimulus 00Strong economic rebound expected in Q4, once the lockdowns are lifted, supported by extraordinary fiscal and monetary stimulus The Bank of Canada stands ready “to do what it takes”. And, as widely expected, finally cut the policy rate to the zero-lower bound on March 27th. It also launched new programs to inject liquidity and begin acquiring Government of Canada securities.
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