COVID

Canada’s economy continues to recover, as indicated by the 418,500 jobs created in July. However, the increase is less than June, suggesting the initial bounce-back is now behind us. At this point, most restrictions have been lifted across the country but only 55 per cent of jobs lost between February and April have been recovered, meaning employment is still down more than 1.3 million compared to February. Fully restoring Canada’s employment levels will take time as business closures are holding back both consumer and business confidence.

Consumer sentiment continued to improve in June. Our Index of consumer confidence nudged up 16 points this month to 79.7 (2014 = 100), roughly two-thirds of its pre-pandemic level (120.6).

Consumer confidence improved across all regions this month as did sentiments about future employment. With this increased optimism, the share of people who believe now is a good time to make a major purchase rose to 20.4 per cent in June, up 5.8 percentage points from May. Overall, however, Canadians are still cautious about making major outlays. More people feel pessimistic about making a major purchase now (57.5 per cent) than during the peak of the 2008 financial crisis (54.3 per cent).

The travel and tourism sector has been hit especially hard by the COVID-19 outbreak. This important sector of the Canadian economy generates billions for our economy and employs millions of Canadians. A typical weekend in late March sees about 40,000 Americans enter Canada by land. On March 29 of this year, only 531 Americans crossed land borders. The combination of closed borders and physical distancing guidelines has had travellers re-evaluating their plans.

In our spring survey, we typically find around 75–80 per cent of Canadians are planning a trip. This year, only 45 per cent are. We expect domestic travel to return to something similar to normal next April. International travel will likely remain at below-normal levels until next December.

Business sentiment had already been languishing at its lowest level since the financial crisis. From that weak starting point, the Index of Business Confidence dropped by half, its lowest level on record. Very few business leaders are expecting the economy, or their firms’ fortunes, to improve in the next six months.

Among the respondents to the survey, 63 per cent said they expect economic conditions to be worse while just 25 per cent believed economic conditions will improve. In the previous quarter, the ratio of pessimism to optimism was 25 to 20. With the index well below its previous low, it seems likely that business investment will be exceedingly weak for the foreseeable future, which will have a lasting impact on the country’s potential economic growth.

The Conference Board examined changes in the number of job postings across Canada, and they paint a stark picture. The good news? Organizations are still advertising for positions. The bad news? Job postings fell by half between the beginning and the end of March, and that drop is continuing into April.

Every province and territory saw at least a 30 per cent decline in the number of job postings during March. No part of the country has been unaffected, and we will need a coordinated effort to restart the economy once our health authorities deem it safe to do so.

Canada is in the midst of the worst economic downturn it has experienced in decades. The shutdown of non-essential businesses and the physical distancing measures in place across the country to slow the spread of COVID-19 have brought activity in many industries to a near standstill. In the second quarter of this year, the decline in GDP is forecast to hit a staggering 25 per cent in annualized terms. On top of that, Canada’s energy sector is dealing with plummeting demand for oil and a price war between Saudi Arabia and Russia. Our forecast for 2020 calls for a steep decline in economic growth in every province.

This Preliminary Provincial Outlook updates our outlook for the Canadian economy and provides our new estimates for growth in each of the provinces in this challenging year.

We expect the U.S. economy to decline by a staggering 22.0 per cent in the second quarter of this year. It will then begin to recover, based on our assumption that the impact of the virus will start to fade in the summer months. Overall real GDP growth is forecast to drop by 3.5 per cent in 2020, down from 2.3 per cent growth in 2019. A sharp recovery in growth is anticipated in 2021. What has saved the U.S. economy from a far worse fate has been the widespread and dramatic steps taken by the federal government and the U.S. Federal Reserve to ensure that it doesn’t spiral out of control.

In the space of just two months, world economic activity plunged as the world’s largest economies closed factories, schools, airports, non-essential shops, and other businesses and activities. At the beginning of this year, we expected global GDP to expand by 2.6 per cent in 2020. But the adverse developments over the past two months will likely reduce that to no growth at all this year. And if the virus is not contained, we could even see a global economic contraction.

In another sign Canada’s economy is on the path to recovery, employment rose by a record 952,900 in June. The rebound was concentrated in services, part-time and low-wage jobs—a partial recovery in the same segments that were hardest hit by the pandemic. Despite the solid gains in June, Canada’s economy still has a long road back to recovery. Employment is still down 1.8 million when compared to pre-pandemic levels, with the largest gaps in industries that will not recover quickly.

In another sign that the worst of the economic decline from COVID-19 is behind us, employment rose by 289,600 in May. Given the survey dates didn’t coincide with much of Ontario’s gradual re-opening, employment growth will continue in June as restrictions are gradually eased across the country. Of course, even with the increase this month, employment remains well below where it was in February, and the road to recover the net 2.7 million jobs lost will be long.

Consumer confidence edged higher in May on the heels of two months of record-breaking declines that had brought our Index of Consumer Confidence to a historical low. The index climbed 16.2 points in May, after hitting a record low last month, and sits at 63.7 (2014 = 100), slightly higher than its trough (56.3) during the 2008 financial crisis.

While the increase is certainly good news, the index is still down nearly 60 points since before the lockdown in February. This tepid gain shows the households across the country remain cautious about the economy and this will weigh on purchasing decisions over the coming months.

Canada lost nearly 2 million jobs in April during the peak of the COVID-19 economic impact. This brings total job losses since February to 3 million, close to our late March forecast of 2.8 million. In all, employment has fallen 15.6 per cent since February. We expect the worst of the job losses are behind us and the labour market will slowly recover as restrictions are eased.

While it’s troubling that job losses are concentrated in low wage industries, the CERB is a good income support for workers in these jobs. In all, the latest job report suggests that government programs have helped stem job losses in the country, which should foster optimism as we head into the recovery phase.

The Index of Consumer Confidence fell by 41.0 points in April—a record decline and a record low. Canadians are especially worried about the future. Nationally, 36.1 per cent of respondents expect their finances to worsen over the next six months. With little optimism about the future, Canadians are unwilling to make a major purchase. Over three-quarters of respondents think now is a bad time to make a major purchase—more than 20 percentage points above the previous record.

Overall, this month’s results reflect the speed and depth of Canada’s economic slowdown. The sharp plunge in consumer confidence supports our view that economic growth in the second quarter of 2020 will be the worst we have seen in the past 60 years.

In the first wave of COVID-19 related job losses, Canada lost over one million jobs in March. This was the largest monthly employment decline ever and we expect even more job losses in April as the full impact of mandatory closures and physical distancing measures are reflected in the data. The initial job losses were concentrated in accommodations, food service, retail trade and cultural industries. April is likely to show a broader decline as more businesses scale back due to mandatory closures and reduced demand.

Canada will suffer record job losses in March and April—with lower-wage workers taking the brunt of the hit. The situation is causing us to reassess the economic impact of COVID-19 on the national and regional economies.

Shutting down most, if not all, non-essential services across Canada could lead to an estimated cumulative loss of 2.8 million jobs in March and April—nearly 15 per cent of total employment. These estimates are supported by the number of employment insurance claims, which have topped 2 million over the last few weeks.

In this alternate scenario (of the Canadian Outlook: Spring 2020), 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.

The Index of Consumer Confidence fell 32.0 points in March, the largest monthly decline ever.

Canadians are anxious about the coronavirus. This has implications for Canada’s economy given that consumers have been the main engine of economic growth. With people being encouraged to self-isolate, large gatherings being mostly cancelled, and tourism activity drying up, many Canadians are staying home, which will have a profound impact on economic growth.

There were no positives in this month’s survey—every region saw a double-digit decline in confidence and every question saw a significant weakening in responses.

Canada’s economic growth ground to a halt in the fourth quarter of 2019. With the economy already on precarious footing, the added shocks of the recent rail blockade protests, the arrival of COVID-19, and a collapse in oil prices have brought the country to the brink of recession.

The Canadian economy grew by just 0.3 per cent in the fourth quarter of 2019, its weakest performance since the second quarter of 2016. The sluggishness was the result of declines in business investment and exports, which were only partially offset by continued strength in consumer spending.

Now, with the economy being hit by a slew of additional shocks, we expect business investment and exports to post substantial declines and consumer spending to ease. As a result, economic growth will contract by a projected 2.7 per cent in the second quarter. However, growth should resume in the third quarter, allowing the economy to avoid a technical recession. Unfortunately, there are huge downside risks to our outlook due to the unpredictability of the coronavirus pandemic. Overall, we expect growth of just 0.3 per cent in 2020 followed by a rebound to 2.5 per cent growth in 2021.