TORONTO —
The economic fallout from COVID-19 will likely only be short-term, Scotiabank’s deputy chief economist says, as the Bank of Canada is set to announce its next interest rate decision this week.
Global markets plummeted last week, with U.S. stocks experiencing the worst rout since the 2008 financial crisis as governments around the world began taking more drastic measures to contain the virus amid an increasing number of cases reported in countries outside of China, and as companies warned investors that sales and supply-chain disruptions would hurt finances.
“When we look at past epidemics, these kinds of disruptions typically pass after a couple of quarters. They’ve an immediate impact on growth for about half a year, and then we see a moderate and sometimes quite robust rebound,” Brett House, vice president and deputy chief economist at Scotiabank, told CTV’s Your Morning.
The Organization for Economic Cooperation and Development (OECD) said Monday in a special coronavirus report that the global economy could shrink this quarter for the first time since the 2008 financial crisis, but that it was still expected to grow overall this year and rebound in 2021.
Even with a rebound, the World Bank warned last year that a severe pandemic could, conservatively, “destroy up to 1 per cent of global GDP”. Experts including the OECD also note the global economy is much more integrated and dependent on China than it was during SARS 17 years ago. Chinese data showed that the country’s manufacturing plunged last month as efforts to contain the virus put more than 760 million Chinese in various levels of lockdown and halted much of the world’s second-largest economy.
DIFFERENT FROM 2008
Despite some comparisons to the financial crisis more than a decade ago, House said the current situation was “profoundly different”, noting that the 2008 crisis was triggered by problems in the U.S. financial system and the country’s mortgage market.
“Here we have disruption in supply chains, mainly coming out of China. But they’re by no means broken,” House said.
“There’s no question everyone’s concerned seeing the numbers from last week, but if you are a long-term, diversified investor – as we all should be – your focus should be on that long horizon, and keeping calm through this.”
House advised Canadians to continue to contribute to their RRSPs ahead of Monday’s deadline and to ensure their RESPs were maxed out to take advantage of the 20 per cent match by the government, for example.
Scotiabank is predicting, when the Bank of Canada announces its next rate decision on Wednesday, the central bank will likely follow dozens of other central banks around the world that have cut interest rates, but House said a move would not be just due to COVID-19.
Economic data in recent months have shown signs of softness in the Canadian economy across a number of sectors, and a cut this week would give businesses more support, he said.
Still, most economists are not expecting the Bank of Canada to cut interest rates on Wednesday, according to a poll released by Reuters.
The one area of uncertainty is how far COVID-19 will spread, House noted.
Since officials began tracking the virus about a month and a half ago, there have been more than 89,000 infections spread across more than 60 countries on every continent except Antarctica, and more than 3,000 people have died. In Canada, there have been 24 cases confirmed so far, with seven new cases in Ontario over the weekend.
With files from The Associated Press
