Green shoots of recovery in the spring but prepare for the long haul

Canadian economists are cautiously optimistic for better things ahead but patience will be required

Green shoots of recovery in the spring but prepare for the long haul
Steve Randall

With the pandemic still disrupting lives and hampering economic recovery, things are set to improve – but a slow recovery is likely.

A panel of leading Canadian economists and finance experts convened by sees little expectation that the Bank of Canada will change interest rates Wednesday, amid continuing challenges for the economy.

Almost one third of the panel believes the BoC will keep rates unchanged for at least two years, although 19% suggest that the current economic conditions warrant a cut although 87% overall think the next change will be upwards.

Moshe Lander, economics professor at Concordia University, is one of those in the minority. He says that the BoC is running out of conventional monetary policy tools and is resorting to unconventional measures to support the Canadian economy.

“As the federal government incurs record-breaking deficits and as the pandemic is far from over, I think the time is coming for the bank to test the absolute limits of its conventional tools as more of the responsibility for maintaining the economy from imploding will fall to it,” he said.

There is considerable uncertainty about how the trajectory of the pandemic will change and how the global economy will fare.

GDP to recover in 2021?

Asked whether they believe the Canadian economy (in GDP terms) could recover to pre-pandemic levels by the end of the year, 47% were not convinced.

Despite the likely impact of the vaccine roll-out, TD senior economist Sri Thanabalasingam thinks recovery will take longer than this year.

“This next phase of the recovery will be challenging with much depending on virus and vaccine developments,” he said. “The current quarter will be especially difficult given rising caseloads and new restrictions. However, as a larger share of the population receive the vaccine, the economy stands to see stronger growth beginning in the second quarter.”

But a sizeable 40% of the panel was more optimistic, believing that recovery could come in 2021.