Virus vs. Economy: Experts warn of slower Canadian recovery

Expectation that the economy would bounce back quickly has been stymied by a resurgent virus says a panel of economists

Virus vs. Economy: Experts warn of slower Canadian recovery
Steve Randall

Hopes of a swift journey to recovery for the Canadian economy may be misplaced according to a panel of economists.

The experts polled by Reuters believe that a slower recovery is now likely and warn that there is high risk that the bounce back that is underway may be stalled by rising coronavirus cases in the country.

Three months ago, a similar survey called for growth of 10% for the fourth quarter of 2020, followed by 7% growth in the first three months of 2021. But the panel now believe there will be little more than 5% growth across each of those periods.

With the Canadian economy having contracted by 8% in the first quarter and 39% in the second quarter of 2020, there is a lot of lost ground to recover.

The panel believes that third quarter growth was a strong 44.5% (annualized) and for the year overall, contraction of near 6% is expected.

But rising virus infections is likely to see the economy hit the brakes – almost 60% of respondents said the risk of this was high or very high.

“The second wave has already forced Ontario and Quebec to shut down businesses like restaurants, bars, and gyms for 28 days. Only with the virus under control can provinces safely reopen the entire economy. Until then, the next phase of the recovery will be slow and choppy,” Sri Thanabalasingam, senior economist at TD told Reuters.

Looking ahead, the economists are calling for 5% growth in 2021 with a slower 2.8% in 2022.

Interest rates and inflation
The panel expects inflation to be an average 0.7% for 2020, rising to 1.6% in 2021 and 1.9% in 2022.

And there is no backing for the Bank of Canada if it decided to take interest rates below zero with panelists concerned of the risk to financial stability while having little impact on growth.