COVID-19 has really thrown a lot of the economic forecasting out the window for the Canadian economy. The big question is, how quickly we can get back to normal? Glen Hodgson, fellow-in-residence at the C.D. Howe Institute at Toronto, Ont., joined Shaun Haney for a chat about our country’s economic forecast.
The economy rode a rapid elevator ride down with a 20 per cent drop in GDP going back to mid-March up until the present. The April numbers released by StatsCan show that month was the toughest with a 12 per cent drop in GDP. Hodgson says that we’re bound to see growth again in May and June as businesses started to reopen.
“We’re on the recovery path now, but I think it’s important to emphasize, we won’t have full recovery until we have a vaccine that’s widely available,” says Hodgson. It’s too hard to guarantee risk in air-travel and tourism until there’s a safeguard.
A vaccine could take years, however, which means a lot of uncertainty for the economy. Hodgson says that one forecaster predicts a vaccine will be available by this time next year and the economy will rebound in the second half of 2021. This is a huge amount of uncertainty that all sectors of the Canadian economy will face.
“The good news is we are getting a rebuild, you can see that sector by sector, province by province, our economy’s opening up again, so we’re not retracting anymore,” says Hodgson, but we won’t get a complete recovery to a normal state until there’s a vaccine, and of course there’s always the chance of a second wave.
How the consumer has reacted is mixed—retailers can’t keep hot tubs in stock, bicycles are selling like crazy, and RVs are a hot commodity. Yet, there’s no denying that some things from a consumer standpoint have been impacted, yet others haven’t. Hodgson explains that most supply chains have been impacted from manufacturing to food distribution. There’s been a jump by 20 per cent of grocery shopping, yet when you go to the grocery store there are certain items unavailable for purchase.
In the agriculture sector, access to inputs and getting product to market are direct effects felt by producers because of the pandemic.
Looking globally, Hodgson says agricultural exporters are more diverse than any other type of export— approximately 70 per cent of our agricultural exports goes to the U.S.; however with state-level shutdowns, there may be a 10 per cent contraction of the U.S.’s economy causing a potentially more bumpy recovery.
China is now growing again after containing the pandemic with a forecasted one to two per cent growth over the course of the next year. Europe was really hit hard by the pandemic but the diversity of the European Union members have all had different outcomes.
The Bank of Canada’s and Federal Department of Finance’s response to COVID-19 has been to “turn on the taps all the way,” says Hodgson, by cutting interest rates effectively to zero and short-term rates to 0.25 per cent. Hodgson says the CERB and wage subsidies for small businesses and opening a window for large businesses are the government’s attempt to building a bridge over a ‘huge valley’ we’ve created in our economy.
Government spending is going to cost a quarter of a trillion dollars which will lead to debt down the road, but “arguably this is something that had to be done,” says Hodgson. The challenge, he says, will be figuring out what the next step is. Hodgson foresees sales taxes and other new forms of revenues that from a federal standpoint will be an important part of the equation as the economy recovers.