If there’s one thing we know about COVID-19, it's that it has brought incredible uncertainty to our lives. It has also brought uncertainty about the state of our economy. Each day brings an overflow of updates: new cases, provincial and federal government action, spikes to EI claims, business closures, and event cancellations.
This shifting landscape makes it a challenge to project what the actual economic implications will be for the Canadian economy. However, with the increasing understanding of the extended measures necessary to contain the virus, new economic forecasts are emerging and they will help us better understand the potential economic impact of COVID-19.
Physical distancing until August
Just two weeks after making a baseline forecast for economic growth in 2020 and beyond, the Conference Board of Canada (CBoC) released an updated forecast on March 23,2020, based on the increasingly possible scenario of an extended period of physical distancing.
These results, based on physical distancing measures extending until the end of August, paint a bleak picture for the second and third quarters of this year with a considerably larger downside than the baseline forecast determined from a shorter containment phase (six weeks). In the alternate scenario, Canada’s real GDP in 2020 is forecast to decline by 1.1 percent, compared to a 0.3 percent growth in the baseline case.
Meanwhile, unemployment would peak at 7.7% in the third quarter of 2020, up a full two points from the record low of 5.7% in 2019. The picture internationally is also troubling. The impact will be particularly felt in certain sectors: tourism, household services, and natural resources will be disproportionately affected.
Impact of COVID-19 containment
The CBoC’s alternative scenario forecast highlights how critical containment of COVID-19 is, and why flattening the growth curve is paramount. Clearly the length of physical distancing will vary the economic outcome considerably. Without proper measures taken, the economic damage will be increasingly negative, not to mention the impact on the health of Canadians.
Much of Europe and the US, key trading partners for Canada, are expected to enter recessions. Asian countries are expected to fare better, in large part due to their efforts in slowing down the virus’ growth rate.
There’s still hope
The silver lining is that CBoC is also projecting a healthy rebound in both scenarios after COVID-19 subsides. Real GDP is expected to grow by 3.3 percent in 2021 in the alternate scenario, driven by the release of supressed consumer demand and government intervention.
The unemployment rate is also expected to fall to a much healthier 5.9 percent. Unlike the financial crisis of 2008-2009, this economic downturn is not based on structural problems in our economy.
The health of our citizens and economy is dependent on all of us taking collective action. If we want to return to normalcy in the long-term, it will require changing the way we live in the short-term. Thankfully, it appears all levels of government, business owners, and residents across Canada are realizing the importance of working together to curb the spread of COVID-19.
Aaron Aerts is an economist for the Chartered Professional Accountants of BC