Canadian Economic Outlook (1Q20) – Locked into a recession
Article information and share options
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.