Canada's economy won’t recover from COVID-19 until 2022

A new report released by the Bank of Canada (BOC) today projects that Canada’s economy won’t fully recover from the effects of the COVID-19 pandemic until 2022.

“The Canadian and world economies have rebounded sharply from the severe downturns experienced with the onset of the COVID-19 pandemic,” said the BOC in its report. “However, the virus continues to spread worldwide, and it is still having significant economic impacts.”

And while there was a sharp bounce-back in growth that occurred when containment measures were lifted and the economy reopened, “the Canadian economy transitioned to a slower, more protracted recuperation phase of its recovery,” the BOC said.

Furthermore, the “near-term slowing in the recuperation phase is likely to be more pronounced as a result of the recent increase of COVID-19 infections [and] there is ongoing and significant slack in the Canadian economy,” the report said.

As such, the gap between the actual output and the potential output of the economy “is not expected to close until 2023.”

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At this point in time, “the economy is progressing unevenly, with some sectors and workers disproportionately affected by the virus,” the BOC noted. And this ongoing slack in the economy is expected to continue to hold inflation down into 2023.”

Still, the BOC notes that this economic projection is “highly conditional on assumptions about COVID-19.”

The economic recovery “remains dependent on the evolution of the pandemic, the BOC said.

However, “despite this ongoing uncertainty, the Bank is returning to its usual practice of providing a projection for economic growth and inflation.”

And with more than six months since the onset of the pandemic, “the Bank has gained a better understanding of how containment measures and support programs affect the Canadian and global economies.”

This, along with more information on medical developments related to COVID-19, “allows the Bank to now make a reasonable set of assumptions to underpin a base-case forecast.”

Growth is expected to average close to 4% over 2021 and 2022 as the economy recuperates, the BOC said in its report. “This implies that GDP does not return to its pre-pandemic level until the start of 2022, and the output gap is not closed until considerably later.”