Canada to avoid technical recession despite hit: Conference Board
Forecast of 0.3% economic growth in 2020 followed by a rebound to 2.5% in 2021
TORONTO — Canada will avoid a technical recession even as the COVID-19 pandemic curtails consumer and business spending, and oil prices have cratered, the Conference Board of Canada said.
After slowing to end the year, economic growth has been weak in the first quarter and is expected to contract in the second quarter to 2.7%.
“However, growth should resume in the third quarter, allowing the economy to avoid a technical recession,” said the Conference Board’s spring outlook report.
A technical recession is defined as two consecutive quarters of negative economic growth.
Overall, the Conference Board expects just 0.3% economic growth in 2020 followed by a rebound to 2.5% in 2021.
“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,” said its report.
The conference board acknowledges there are huge risks to its outlook due to the unpredictability of the coronavirus pandemic.
Many Canadians likely think the closing of shops, curtailing of travel and other emergency actions will result in a deeper recession than the conference board is forecasting followed by a recovery, said Anish Chopra, managing director with Portfolio Management Corp.
“Most people I would argue are believing that we’re in one or we’re going to get in one very quickly,” he said in an interview.
“Given the stimulus that’s in the economy … there’s certainly a chance that we have a strong recovery coming out of this but it’s hard to pinpoint exactly when and that really depends on just how long the coronavirus lasts.”
The conference board said its base case outlook assumes that current containment measures will spare Canada of the mass quarantines in Italy. Still, the impact to Canada’s economy will be significant.
The response to the novel coronavirus, including the closing of businesses, cancellation of sporting events and closing Canada to all but Americans, should result in large declines in the number of tourists coming to Canada this year and a cut in their spending.
Tourists from China totalled 753,000 last year, spending $1.8 billion. It expects the number of visitors to Canada to decline by more than two million in the second quarter.
Exports and imports will weaken amid lower demand for raw materials, resulting in lower investment in the mining sector.
The global economy is expected to soften with the U.S. declining by nearly 4% in the second quarter after rising by an estimated 1.3% in the first quarter. Chinese economic growth is forecast to turn negative in the first quarter and be almost 4% for the year, down from 5.8% expected at the beginning of the year.
The oil and gas sector will continue to be hurt as oil prices fall below US$30 per barrel. But it expects the price will return to US$45 to US$50 per barrel as Russia and Saudi Arabia return to the bargaining table to end their price war.
The board expects the Canadian job market will face a modest downturn as 138,000 jobs will be created for the year, down from 391,000 last year.
However, it expects the temporary nature of the coronavirus will prompt most firms to do their best to retain workers to be in a position to resume growth later in the year.
“While industries such as those related to travel, large events or the oil industry will see substantial declines in employment growth in the second quarter, we expect the losses in most other industries to be minimal.”