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Economy

How much has the COVID-19 pandemic damaged the economy? – The Globe and Mail

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The Bank of Canada is framed in an iron rail in Ottawa on Dec. 15, 2020.

Sean Kilpatrick/The Canadian Press

Along with much of the world, Canada’s economy has suffered from the COVID-19 pandemic and other events in 2020, notably the shock to global oil markets. How badly? An examination of the immediate data and longer trends indicates significant damage, with a lengthy recovery period ahead.

Let’s start with labour markets, where there are signs of recovery but also growing evidence of damage. The unemployment rate exploded to nearly 14 per cent from 6 per cent during the shutdown from March to May. The rate has dropped steadily since as many displaced workers have been re-engaged, but the second pandemic wave and renewed shutdowns in many provinces have meant more job losses. Employment fell by 63,000 in December, and the unemployment rate rose slightly to 8.6 per cent.

There are many other worrying signs. Long-term unemployment – lasting 27 weeks or longer – has increased sharply and now represents more than one-quarter of those unemployed, with a growing risk of many discouraged workers dropping out of the work force.

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Much of the Canadian work force is underutilized. The most recent Statscan data show that one in six people in the potential labour force are employed but working less than half of their usual hours, unemployed or want a job but are not looking for one.

Women, youth, Indigenous people and new Canadians continue to be particularly affected by pandemic-driven unemployment and underemployment. To help minimize long-term scarring, active labour market policy is called for, including enhanced retraining and skills development, facilitating school-to-work transitions for recent graduates, supporting labour market participation by parents and underrepresented groups, and fully recognizing and utilizing the skills of new Canadians.

Economic output has been steadily rebuilding after the deep contraction during the first shutdown period. The consensus among private forecasters is that GDP shrank by 5.8 per cent in 2020, with real growth of 4.8 per cent projected for 2021. Despite this rebound, the survival of many businesses remains under threat. Even with a successful vaccine rollout and a steady return to more normal operating conditions in many sectors, Canadian GDP by the end of 2021 is projected to be about 3 per cent below GDP at the end of 2019.

Perhaps the most serious indicator of damage is the estimated drop in long-term growth performance for the Canadian economy, which economists call “potential.” The recent federal economic statement provided a revised estimate of Canada’s growth potential, taking into account the pandemic shutdown and uneven recovery.

Long-term growth potential has declined by roughly half a percentage point from estimates before the pandemic, to only 1.4 per cent real growth annually. This drop reflects the combined impact of a sharp decline in investment, the effect on labour markets, plus chronically weak productivity growth.

That growth potential matters. Fundamentally, it determines the capacity for improvements to Canadians’ real incomes and living standards. Slower growth squeezes the capacity to fund public spending priorities such as health care, as well as the ability to manage the much higher level of public debt owing to the pandemic policy response. Long-term annual growth that is half a percentage point lower than before the pandemic increases the odds of an eventual tax increase to fund policy priorities and manage public debt.

Canada’s long-term annual growth potential can be raised back toward 2 per cent, but it will require a reversal in labour market and investment trends this year. As noted earlier, some healing is taking place in Canadian labour markets, but there are also still many individuals at risk. The consensus forecast in the economic statement indicated it will be 2024 before the unemployment rate declines to prepandemic levels.

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A sustained boost to the level of investment would make a valuable contribution to growth, fostering capital formation and faster productivity growth. Increased public sector investment in infrastructure can partly address the investment gap, but higher sustained private investment will be key to maintaining and building the economy’s productive capacity and the ability to innovate.

While investment in maintenance of the existing capital base will recover somewhat as the economy slowly heals, new capital formation is bound to be more difficult. The scale of investment in energy production, distribution and use with low or no greenhouse gas emissions, along with addressing the transition challenges facing the oil and gas sector, will be critical to the long-term Canadian growth puzzle.

The pandemic has inflicted damage on many individuals and businesses. It is not realistic to expect a return to normal any time soon. However, policy can certainly help guide us through the uneven recovery.

Policy action could usefully focus on minimizing labour market scarring as a top priority. Creating the best possible investment climate with an eye on the transition to an economy with low or no GHG emissions also deserves attention. Maintaining international business tax competitiveness has always been a challenge, but one we cannot ignore. Improving the overall competitive and regulatory environment is another option that is fully within our control; more efficient regulatory processes could be adopted without sacrificing health, safety and other standards.

While there is no single silver bullet for lifting private investment, these actions together will go a long way.

Glen Hodgson is a senior fellow at the C.D. Howe Institute.

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Economy

Canadian economy posts worst showing on record in 2020 – Global News

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The Canadian economy posted its worst showing on record in 2020 as the COVID-19 pandemic swept across the country shutting down businesses and putting people out of work.

Statistics Canada says real gross domestic product shrank 5.4 per cent in 2020, the steepest annual decline since comparable data was first recorded in 1961.

The drop for the year was due to the shutdown of large swaths of the economy in March and April during the first wave of the COVID-19 pandemic that crushed the economy.

Since then, economic activity has slowly and steadily grown.

Read more:
Canada’s small businesses now have $135B in debt due to COVID-19, CFIB estimates

Statistics Canada says the economy grew at an annualized rate of 9.6 per cent in the fourth quarter of last year, down from an annualized growth rate of 40.6 per cent in the third quarter.

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That was higher than expected, with the average economist estimate at 7.5 per cent, according to financial data firm Refinitiv.

However, despite the better-than-expected result for the quarter as a whole, December eked out a 0.1 per cent increase, which followed a 0.8 per cent increase in November.

Read more:
Governor of Bank of Canada points to child care, education to help ease protracted employment recovery

Statistics Canada noted that total economic activity in December was about three per cent below the pre-pandemic level in February 2020.

Looking ahead to January, Statistics Canada said its early estimate was for growth in the economy of 0.5 per cent.

CIBC chief economist Avery Shenfeld wrote in a note that the early January figure should set aside fears of an outright downturn in the first quarter.


Click to play video 'Coronavirus: Canada’s economy could suffer in 1st quarter of 2021 with rising COVID-19 infections'



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Coronavirus: Canada’s economy could suffer in 1st quarter of 2021 with rising COVID-19 infections


Coronavirus: Canada’s economy could suffer in 1st quarter of 2021 with rising COVID-19 infections – Dec 15, 2020

Statistics Canada said wholesale trade, manufacturing and construction sectors led the increase, while retail trade fell to start the year.

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BMO chief economist Douglas Porter said the economy soldiered through second-wave restrictions better than anticipated, and may signal a better-than-anticipated quarter, and potentially year overall.

“Look for new growth drivers to kick into gear as the economy re-opens in stages through this year, leading to roughly (six-per-cent) growth – a nice mirror image to last year’s deep dive,” he wrote in a note.

“It’s not precisely a V-shaped recovery, but it’s very close.”

© 2021 The Canadian Press

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Economy

Canadian economy contracted 5.4 per cent in 2020, worst year on record – The Tri-City News

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OTTAWA — The Canadian economy posted its worst showing on record in 2020 as the COVID-19 pandemic swept across the country, shutting down businesses and putting millions out of work.

Statistics Canada says real gross domestic product shrank 5.4 per cent in 2020, the steepest annual decline since comparable data was first recorded in 1961.

The drop for the year was due to the shutdown of large swaths of the economy in March and April during the first wave of the COVID-19 pandemic that crushed the economy.

Since then, economic activity has slowly and steadily grown.

Statistics Canada says the economy grew at an annualized rate of 9.6 per cent in the fourth quarter of last year, down from an annualized growth rate of 40.6 per cent in the third quarter.

That was higher than expected, with the average economist estimate at 7.5 per cent, according to financial data firm Refinitiv.

However, despite the better-than-expected result for the quarter as a whole, December eked out a 0.1 per cent increase, which followed a 0.8 per cent increase in November.

Statistics Canada noted that total economic activity in December was about three per cent below the pre-pandemic level in February 2020.

Looking ahead to January, Statistics Canada said its early estimate was for growth in the economy of 0.5 per cent. 

CIBC chief economist Avery Shenfeld wrote in a note that the early January figure should set aside fears of an outright downturn in the first quarter.

Statistics Canada said wholesale trade, manufacturing and construction sectors led the increase, while retail trade fell to start the year.

BMO chief economist Douglas Porter said the economy soldiered through second-wave restrictions better than anticipated, and may signal a better-than-anticipated quarter, and potentially year overall.

“Look for new growth drivers to kick into gear as the economy re-opens in stages through this year, leading to roughly (six-per-cent) growth  — a nice mirror image to last year’s deep dive,” he wrote in a note.

“It’s not precisely a V-shaped recovery, but it’s very close.”

This report by The Canadian Press was first published March 2, 2021.

The Canadian Press

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Economy

2020 was the worst year on record for Canada's economy. It shrank by 5.4% – CBC.ca

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Canada’s economy shrank by 5.4 per cent last year, official data from Statistics Canada showed Monday, making 2020 the worst year for the country’s economic output since record keeping began.

The data agency said Tuesday that Canada’s gross domestic product — the total value of all goods and services it produced — grew by 2.3 per cent during the last three months of the year, but that was nowhere near enough to offset the record-setting plunge it experienced during the the middle half of 2020.

Since bottoming out in the spring and early summer, economic activity has slowly, steadily grown.

For comparison purposes, Canada’s economy contracted almost twice as much as the U.S. did during the COVID-19 pandemic, despite the U.S. seeing far more cases per capita.

Preliminary data suggests the U.S. economy shrank by 3.5 per cent last year.

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