Pent-up demand and stimulus will help GDP largely reverse the decline of 2020
There is so much of 2020 that will never be erased and the financial scars will be eternal for some of those most impacted. But, economically, things will improve.
By the end of 2021, a mix of pent-up demand the effects of monetary and fiscal stimulus should mean a rebound for the Canadian economy according to the latest analysis from BMO.
The bank’s Blue Book, which combines the expertise of its economists and business bankers, looks at multiple business sectors across Canada and for each province.
While the current quarter is struggling due to a second wave of COVID infections and restrictions, the report forecasts a better outlook ahead with growth of 5.0% for 2021 as a whole.
"This year's growth will largely reverse the 5.4% decline seen in 2020, leaving output roughly at pre-COVID levels by the end of this year," said Doug Porter, Chief Economist, BMO Financial Group.
West will be best
Canada’s western provinces will lead the economic recovery in 2021.
British Columbia will be the star of the show with a 5.7% rebound in real GDP, largely because the province has managed to avoid tougher restrictions at the start of the year.
Despite the pandemic’s impact on the energy sector and some COVID restrictions that have been implemented in the first quarter, Alberta should also post a solid 5.1% growth this year. Oil prices are improving and the province has seen the strongest rebound in business confidence of all regions in recent months.
Ontario has suffered from high infection rates and lockdown measures. However, its economic recovery will meet the national forecast with 5.0% growth, taking the lead nationally later in the year as vaccinations take effect. Housing and consumer spending will play a key part in the provincial economy.
Quebec will also see improvement in the second half of the year as the COVID impacts ease. BMO expects growth of 4.8% for 2021.
In the Prairies, improved conditions for the energy markets will boost Saskatchewan to a 4.4% growth rate while Manitoba’s diversified economy will help it shake of tougher restrictions for 4.6% growth in real GDP.
Meanwhile, although Atlantic Canada has coped relatively well with the pandemic from a healthcare perspective, some industries such as leisure and tourism have suffered badly in the past year.
BMO notes that Atlantic Canada’s pre-pandemic population boom, a key economic booster, has stalled and there is no certainty of when that might resume.
Key to all of this is Canada’s vaccination program. A slower rate would likely mean whole-year potential is not achieved while a faster-then-expected rate of jabs should support stronger growth.