Canadian Economic Outlook (1Q20) – Locked into a recession

The global pandemic and the resultant social distancing lockdowns have thrown the Canadian economy into what's likely to be the steepest and sharpest recession in post-war records. Significant oil price declines due to a precipitous global drop in demand compounded by an OPEC+ price war add further pain. Although any point estimates at this time are subject to a huge amount of uncertainty, we forecast that real GDP will fall by 4.6% for the full year, compared to a 2.9% hit in 2009. A flash estimate from Statistics Canada reports a 10% annualized GDP decline already in 1Q. After a further projected unprecedented 2Q drop in activity, the path ahead is closely dependent on virus developments. We expect a local peak in the pandemic by late April/early May, followed by a gradual re-opening of the current lockdowns. However, risks remain largely to the downside.

Key takeaways:

• The coronavirus pandemic has thrown the Canadian economy into a steep, sharp recession.

• Any point forecasts of economic variables at this time are subject to a huge amount of uncertainty.

• Risks to the baseline forecast remain to the downside and depend largely on virus developments.

• The recent OPEC+ deal is not enough to forestall further pain in the oil patch, compounding the coronavirus hit to the Canadian economy.

• Despite a lag in the availability of hard economic data, existing March releases are already ugly.

• Unprecedented fiscal stimulus will not offset the sizable 2Q hit to GDP but should facilitate a smoother restart.

• Monetary policymakers have also pulled out all the stops to support the economy and the functioning of financial markets.