There have been dramatic impacts on the Canadian and global economy due to COVID-19. In the midst of all of this, one might wonder where the global and domestic economies are headed and what the future might bring.
“The first thing that comes to mind when you think of things being unprecedented, more than anything at a time like this, if you are involved in any sort of economic forecasting is to have a fair bit of humility about what the next month is going to look like, or even sometimes the next day,” says Erik Johnson, economist at BMO Capital Markets. His statement is a good caveat to start with — we are certainly living in very uncertain and unprecedented times.
Johnson does think there are some positive signs going forward for the Canadian economy, and to some extent the global economy as well. Consumer sentiment in Canada is starting to perk back up from the really deep lows in March and April, says Johnson. BMO Capital Markets has developed a business activity index which is tracking the economic recovery amongst businesses in Canada, which Johnson has seen improvement in from the bottom. In June the index was up 9.5 per cent, and then in July it appears to increase, not quite as steeply, but still, positive movement.
“I think the thing on the horizon that everyone should be paying attention to and looking at, is where COVID-19 cases are going, at least in Canada we’ve been very fortunate that the rate of infection has gone down a fair bit,” says Johnson. “I think we are well below the global weekly new cases on a per capita basis in Canada,” he adds. This is the positive message he sees going forward, that if the virus can be kept under control, we can heal the economy.
Working hours fell by more than 30 per cent in two months, which is completely off the chart, says Johnson, but employment is expected to make a comeback. As kids go back to school in the fall, people start to find some normalcy again, and government programming starts to run dry, employment number should be on their way back up, certainly out of the double digit percentage range.
In June there was a closing of the Canadian trade deficit gap. Johnson seeds positive macroeconomic factors, particularly for the beef industry that point to good movement in trade measures. Perhaps the more favourable Canadian dollar will help support the industry, with regards to the export market.
“I think in terms of trade there’s a lot of other sector level supply and demand factors that have the potential to kind of overwhelm some of those positive trends,” says Johnson. Whether it’s the dollar or low energy prices, those are the types of things on the macro side that will certainly point to favourable terms for trade.
Canada’s economy is a long way from returning to pre-pandemic levels and Johnson predicts it will take a while yet, possibly by the end of 2021, but things are moving in the right direction.
Listen to the full conversation below: