A recession is coming later this year as the economy is derailed by the impact of COVID-19 and a plunge in oil prices, economists said Friday.
Royal Bank of Canada forecasts the economy will grow at an annualized pace of 0.8 per cent in the first quarter, then contract in the second and third quarters of the year.
RBC is forecasting an annualized decline of 2.5 per cent in the second quarter and 0.8 per cent in the third quarter. Two consecutive quarters of negative growth is considered a recession.
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“Key to the near term outlook and the pace of the recovery will be the policy response by governments,” RBC said in its report.
“The federal government’s plan to provide support measures to mitigate the impact of the virus included upping health care transfers, and increasing unemployment insurance, though both program increases were relatively limited.”
CIBC echoed the RBC comments in its own report that Canada is also likely on the brink of a recession.
“We expect to see output dropping in both the second and third quarters in the U.S. and Canada,” CIBC said in its report.
CIBC forecasts the economy will contract at an annual rate of 3.0 per cent in the second quarter and 3.4 per cent in the third quarter, before bouncing back and returning to growth in the final three months of the year.
The bank says fiscal and monetary stimulus will cushion the downside.
“But Canadians won’t really be out shopping again, and business confidence won’t roar back, until we have the virus under control, a better treatment, or a vaccine,” CIBC said.
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“So, our assumption that growth resumes in the fourth quarter is therefore just that, an assumption about progress on some of those fronts here and in export markets abroad.”
The new forecasts came as governments advise against international travel and Ontario plans to close its schools for two weeks in addition to the week-long spring break holiday because of COVID-19.
Businesses have also moved to do their part in slowing the spread of the virus by urging employees to work from home where possible and limit travel.
The Juno Awards scheduled for the weekend in Saskatoon have been cancelled, while the National Hockey League and National Basketball Association have suspended their seasons. Major League Baseball has ended spring training in Florida and pushed back the start of the season.
The RBC forecast is based on an assumption that the impact of the virus will run its course by the end of the first half of the year, but an economic recovery will be prevented by persistent low oil prices.
The price of oil tanked this week as Saudi Arabia launched a price war with Russia which rejected production cuts that the kingdom had wanted.
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In response, the Saudis moved to ramp up production in a bid to make it more painful for other oil-producing countries to continue without production cuts.
The Bank of Canada cut its key interest target by half a percentage point to 1.25 per cent last week in response to COVID-19 outbreak.
The central bank’s move prompted Canada’s big banks and financial institutions to drop their prime lending rates by a half percentage point.
The Bank of Canada also moved Thursday with an expansion of its bond buy-back program and term repo operations to proactively support interbank funding.
The central bank has said it remains committed to providing liquidity as required to support the functioning of the Canadian financial system.
Governor Stephen Poloz said last week the central bank wanted to cut rates “in a decisive manner” to provide a cushion for Canada’s economy against the effects of COVID-19.
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He has said the immediate effects the virus will have on business investment and consumer spending meant the downside risks to the economy today outweighed continuing concerns that cutting rates would fan financial vulnerabilities in Canada, such as high household debt.
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TORONTO – Canada’s main stock index was up more than 200 points in late-morning trading, while U.S. stock markets were also headed higher.
The S&P/TSX composite index was up 205.86 points at 24,508.12.
In New York, the Dow Jones industrial average was up 336.62 points at 42,790.74. The S&P 500 index was up 34.19 points at 5,814.24, while the Nasdaq composite was up 60.27 points at 18.342.32.
The Canadian dollar traded for 72.61 cents US compared with 72.71 cents US on Thursday.
The November crude oil contract was down 15 cents at US$75.70 per barrel and the November natural gas contract was down two cents at US$2.65 per mmBTU.
The December gold contract was down US$29.60 at US$2,668.90 an ounce and the December copper contract was up four cents at US$4.47 a pound.
This report by The Canadian Press was first published Oct. 11, 2024.
OTTAWA – The economy added 47,000 jobs in September, while the unemployment rate declined for the first time since January to 6.5 per cent, Statistics Canada reported on Friday.
The agency says youth and women aged 25 to 54 drove employment gains last month, while full-time employment saw its largest gain since May 2022.
The overall job gains followed four consecutive months of little change, the agency said.
The unemployment rate has been steadily climbing over the past year and a half, hitting 6.6 per cent in August.
Inflation that month was two per cent, the lowest level in more than three years as lower gas prices helped it hit the Bank of Canada’s inflation target.
The central bank has cut its key interest rate three times this year, and is widely expected to keep cutting as inflation has subsided and the broader trend points to a weakening in the labour market.
Despite the job gains in September, the employment rate was lower in the month, reflecting continued growth in Canada’s population.
Statistics Canada said since the employment rate saw its most recent peak at 62.4 per cent in January and February 2023, it’s been following a downward trend as population growth has outpaced employment growth.
On a year-over-year basis, employment was up by 1.5 per cent in September, while the population aged 15 and older in the Labour Force Survey grew 3.6 per cent.
The information, culture and recreation industry saw employment rise 2.6 per cent between August and September, after seven months of little change, Statistics Canada said, with the increase concentrated in Quebec.
The wholesale and retail trade industry saw its first increase since January at 0.8 per cent, while employment in professional, scientific and technical services was up 1.1 per cent.
Average hourly wages among employees rose 4.6 per cent year-over-year to $35.59, a slowdown from the five-per-cent increase in August.
The unemployment rate among Black and South Asian Canadians between 25 and 54 rose year-over-year in September and was significantly higher than the unemployment rate for people who were not racialized and not Indigenous.
Black Canadians in that age group saw their unemployment rate rise to 11 per cent last month while for South Asian Canadians it was 7.3 per cent. For non-racialized, non-Indigenous people, it rose to 4.4 per cent.
This report by The Canadian Press was first published Oct. 11, 2024.
TORONTO – Canada’s main stock index was little changed in late-morning trading as the financial sector fell, but energy and base metal stocks moved higher.
The S&P/TSX composite index was up 0.05 of a point at 24,224.95.
In New York, the Dow Jones industrial average was down 94.31 points at 42,417.69. The S&P 500 index was down 10.91 points at 5,781.13, while the Nasdaq composite was down 29.59 points at 18,262.03.
The Canadian dollar traded for 72.71 cents US compared with 73.05 cents US on Wednesday.
The November crude oil contract was up US$1.69 at US$74.93 per barrel and the November natural gas contract was up a penny at US$2.67 per mmBTU.
The December gold contract was up US$14.70 at US$2,640.70 an ounce and the December copper contract was up two cents at US$4.42 a pound.
This report by The Canadian Press was first published Oct. 10, 2024.
