Canadian Outlook Summary Summer 2020

Recovery under way after deepest and shortest recession on record.

As COVID-19 spread throughout the world, many countries mandated lockdowns to slow the transmission of the disease. As a result, economic activity around the globe ground to a halt. We saw that narrative play out here in Canada. The good news is that we have seen a gradual but continued easing of restrictions in Canada since April. This means that the economy likely began rebounding in May.

Contents of the Summer 2020 summary:

  • COVID-19 tramples trade
  • Labour market recovery restrained by consumer caution
  • Pandemic hits housing markets
  • Government to the rescue
  • Central banks enter uncharted waters
Woman on cellphone; Canadian flag infront of glass skyscraper

Key findings

The effects of the COVID-19 pandemic have been severe. Mandated business closures and a collapse in both business and consumer confidence will result in an 8.2 per cent contraction for the Canadian economy this year—the worst annual contraction on record.

The devastation in labour markets is weighing heavily on spending this year. Household consumption dipped by 11.3 per cent in the first quarter, and we expect a staggering 57.5 per cent drop in the second. Spending is not forecast to return to its pre-pandemic level until the second half of 2021.

The business sector will fare no better. With global demand drying up, exports are forecast to contract by 14.3 per cent in 2020. Unsurprisingly in this uncertain environment, firms are reluctant to invest in new capacity, and we expect an 11.3 per cent drop in private sector investment this year.

With the worst of the recession likely over, the outlook for 2021 is brighter. The economy is forecast to rebound by 6.7 per cent in 2021 and 4.8 per cent in 2022. As the threat of the pandemic eases, how well the reopening of the economy and the withdrawal of government support is managed will be a crucial determinant of the economy’s trajectory over the next several years.

At its peak, roughly 3 million Canadians had lost their jobs due to the pandemic. The worst does appear to have passed, however, as nearly 300,000 jobs were regained in May. Nevertheless, the road to recovery will be long and employment will still be nearly 1.1 million lower for 2020 as a whole than it was in 2019.