Economic Implications of Social Distancing
Alternate Canadian Scenario
By Pedro Antunes, Chief Economist and Matthew Stewart, Director of Economics
- In this alternate scenario, we assume the travel bans and social distancing measures now in effect will continue until the end of August, both in Canada and the United States.
- The result is a much deeper and longer-lasting hit to Canadian economic activity—real GDP is forecast to fall by 1.1 per cent in 2020, instead of growing 0.3 per cent as in our baseline forecast.
- In this scenario, the economy sheds over 330,000 jobs over the second and third quarters of 2020, boosting the unemployment rate to 7.7 per cent.
- Industries servicing tourism, household services, and resource sector construction will be hit hard. Many of them will suffer double-digit declines in the second and third quarters.
- A consumer-led recession in the United States is assumed, with real GDP declining by 1.0 per cent. With diminished demand from our most important trading partner, Canada’s real exports of goods and services are forecast to decline by over 2.1 per cent in 2020.
- Weak U.S. and global growth will cause a more prolonged drought in commodity prices, hurting investment in the resource sector.
- We further assume that Saudi Arabia and Russia will be slow to reach an agreement to curtail oil production. Oil prices will remain low and investment in the oil patch will keep shrinking.
- Government transfers to people, lower interest rates, and other measures to increase liquidity will help stave off household and business bankruptcies—keeping Canada’s financial institutions in relatively good shape.
- Real estate markets will cool significantly from the frothy activity reported in February, but new home construction is expected to hold up through the downturn.
- With the COVID-19 pandemic contained by September of this year, a rebound in household spending is forecast to occur in the fourth quarter and into 2021.
- Pent-up consumer demand will help economic activity rebound, with real GDP growth of 3.3 per cent forecast in 2021.
Read the issue briefing
Economic Implications of Social Distancing: Alternate Canadian Outlook Scenario
March 2020 • 15-min read
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