It could take up to five years to get back to normal: David Rosenberg
Canada’s status as one of the fastest growing Group-of-Seven economies is coming to an end.
First-quarter numbers due Friday will kick off what’s expected to be a historic decline in output this year, with economists predicting Canada’s economy shrank by an annualized 10 per cent in the three months through March, a record.
That would mark just the start of the COVID-19 destruction, with second quarter gross domestic product expected to plummet a further 41 per cent annualized before recovering later in the year.
The result is a performance that places Canada somewhere in the middle of the pack, at best, among the world’s most advanced economies, a reflection of how the global downturn is hitting smaller, export-driven countries particularly hard.
It’s a disappointing turn for a nation that, pre-pandemic, was one of the main contenders along with the U.S. for the fastest G7 growth in 2020. Canada has been at or near the top spot for all but two of the past 10 years.
“The Canadian economy is much more open than the U.S. economy,” Katherine Judge, an economist at Canadian Imperial Bank of Commerce, said by telephone. “Exporters in Canada are dealing with supply chain issues and weak global growth.”
Statistics Canada has already released a “flash” GDP report for March that shows a 9 per cent decline in output, and an annualized drop of about 10 per cent for the first quarter. And even if the second quarter is as bad as economists expect, the contraction would still fall short of the Bank of Canada’s most dire scenario.
The numbers, though, will provide official confirmation the country entered a recession at the beginning of this year. The Toronto-based C.D. Howe Institute, which tracks and labels Canadian business cycles, has already dated March as the start of the recession.
Friday’s report will also likely show the downturn was broad-based, with only government spending making a positive contribution to growth.
Sharp declines in consumption, business investment and exports in the first quarter are forecast to be much weaker in the second because government measures including closures of restaurants and stores didn’t start in earnest until mid-to-late March.
A 7 per cent drop in output for all of 2020 would be the first annual decline since 2009 and the largest in the post World War II era, more than doubling the previous record in 1982.
It implies a drop in nominal annual output of about $150 billion (US$109 billion), leaving production at about 2017 levels.
The economy should begin to recover as provinces lift restrictions, with a sharp rebound of 4.9 per cent expected in 2021, according to economist estimates.