Economists predict that Canada’s financial recovery will take longer than the US’s once measures are lifted from the COVID-19 pandemic.
According to TD Bank, in 2020, Canada’s GDP will decline by 7.6% compared to the US which will see a 6.5% decrease — globally, there will be a 4.4% contraction in GDP.
A report from business consulting firm RSM Canada shows the nation’s economic recovery will look more like a prolonged “U-shape” recovery pattern, which means the economy won’t come back as quickly as it closed down.
“Measures being taken to stem the spread of COVID-19 have ravaged Canada’s economy,” said Alex Kotsopoulos, vice president of projects and economic with RSM Canada.
“As we look ahead to recovery, we expect it will be more tepid than originally thought and, unfortunately, for a variety of reasons it will take longer for us to rebound in Canada than the US.”
The consulting firm has a few reasons as to why Canada’s economy will take longer to recover, which stems from some preexisting conditions.
One being, household debt in Canada was very high before the pandemic and could get worse now with COVID-19 as Canadian’s are needing to borrow more money to help with housing payments.
Canada was also “disproportionately affected” by the US-China trade war, and the Saudi-Russian oil price war hurt Canada’s oil sector, RSM said.
For these reasons, Canada was in a more unfavourable position going into the pandemic.
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The Canadian government has been implementing financial aid packages to help businesses and individuals, providing EI, the Canada Emergency Response Benefit (CERB), federal wage subsidies, and most recently the $1.7 billion aid package for the oil and gas sector on Friday.
The Bank of Canada also cut their interest rate to 0.25%, creating better access for borrowing money and extending lines of credit.
RSM Canada said the cut in interest rates are “proactive efforts” which help to avoid the “catastrophic freeze up” of the global financial system that occurred in the 2008 financial crisis.
And while these efforts will “bridge the gap” through the pandemic, a “full return will likely take time,” TD Bank said.
The bank also said that the Government of Canada’s data portal revealed that as of April 16, nearly eight million applications for CERB have been received suggesting that “fears of an even greater deterioration in the labour market have been realized.”
TD economists analyzed these new numbers projecting that elevated unemployment is expected to persist longer in Canada.
Last week, the International Monetary Fund (IMF) released a report saying the world’s economy will shrink by 3% in 2020 with Canada’s shrinking more than double at 6.2%.
Canada’s rate is slightly higher than the average of advanced economies at 6.1%. The countries included are the US, Germany, France, Italy, Spain, Japan, and the UK.