The fiscal “snapshot” of the state of Canada’s finances amid the coronavirus pandemic makes it clear that a high level of economic uncertainty remains.
But officials still outlined several possible scenarios for what could come next for Canada’s economy — and they depend on whether there is a serious second wave of COVID-19 transmission.
In a news conference with reporters, Finance Minister Bill Morneau said the snapshot included what the federal government knows now and “a sense” of what officials think will occur in the short term, noting that “the ability to forecast is extremely difficult” at this time.
Here are three possible scenarios outlined in the snapshot released on Wednesday:
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The main economic outlook
The main economic outlook for Canada contained in the document is based on the results of a survey of private-sector economists conducted by the federal finance department in the third week of May.
Federal officials are using the average of those results as the basis for its fiscal projections for the year ahead.
The results of the survey are “most consistent with slow, steady and relatively low levels of ongoing community transmission of the virus,” according to the government’s snapshot.
The unemployment rate — which peaked in the second quarter of 2020 — may remain higher than pre-COVID-19 levels throughout the rest of 2020 and 2021, declining gradually to around seven per cent by the end of 2021, the projections showed.
The average results of the survey also showed private-sector economists expect the country’s real GDP to drop 6.8 per cent in 2020 — a contraction expected to be “much worse than experienced during the 2008-2009 financial crisis.”
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Coronavirus: Trudeau says federal government went into debt so Canadians ‘wouldn’t have to’
But the average of the forecasts predicted “a faster rebound in real GDP than in the past three recessions,” positing that real GDP would rebound by 5.5 per cent in 2021.
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“While private-sector views are relatively aligned on the magnitude of the second-quarter decline [in 2020], their third-quarter growth forecasts diverge widely, reflecting tremendous uncertainty around, for example, the pace of rehiring and investment, rebound in consumer activity, etc.,” the snapshot read.
3:05 Fiscal Snapshot: Morneau says keeping COVID-19 transmission rate down key part of economic plan
Fiscal Snapshot: Morneau says keeping COVID-19 transmission rate down key part of economic plan
A “further resurgence” of the coronavirus in Canada and a second wave of measures to contain it “would severely hamper the economic recovery” — but that resurgence could still be “less economically damaging” than the first wave, the report cautioned.
Citing the “high degree” of uncertainty over how the pandemic will continue to unfold from both public health and economic perspectives and Canadians’ level of caution during that time, the federal government also included two “alternative scenarios” to economists’ projections in its snapshot, which painted more grim outlooks.
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The ‘uneven and gradual recovery’ scenario
The first alternative scenario outlined a more “uneven and gradual recovery” from the pandemic, assuming a “slower pace of return to normal” of economic activity and “repetitive peaks of viral transmission.”
Under that first scenario, households would continue to avoid most public spaces and activities, while businesses wouldn’t fully rebound amid “stringent containment measures” and would continue to operate below capacity.
Those “prolonged shutdowns” would result in more permanent, rather than temporary, job losses, resulting in a “more uneven recovery” across the country and a drop in real GDP of 9.6 per cent in 2020.
“With the pace of business resumption still uncertain, it is unknown whether this scenario will come to pass or not, but it illustrates the potential downside risks that could still exist,” the snapshot noted.
The ‘virus resurgence scenario’
The second scenario considers a serious resurgence of COVID-19 with “uncontrolled transmission” and a sharp increase in new cases later in 2020, evolving into a series of smaller waves of transmission next year.
In that scenario, the resurgence would occur at the same time as the annual flu season and force another round of social and economic shutdowns as part of renewed containment measures.
Economic activity would tank again, and while it might be less severe than during the first wave, the economic damage would be “large,” the document said — resulting in re-closed businesses, fresh layoffs and less spending.
“Overall, this translates into a deeper and longer-lasting negative impact on the economy, with a decline of 11.2 per cent in real GDP in 2020 and the level of real GDP remaining below that of even the most pessimistic private-sector forecast by the end of 2021,” the document said of the second alternative scenario.
Longer-term economic update coming in the fall: Morneau
Which scenario Canada is headed toward may become clearer later this year.
Morneau told reporters the government intends to release a meatier, longer-term economic update or budget and its plans for the “path forward” in the fall, when officials “have more information.”
“We are in a situation where the ability to forecast is extremely difficult,” the finance minister said.
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Fiscal Snapshot: Morneau details how COVID-19 benefits have helped Canadians, businesses
Canada is indeed “in unprecedented times,” Sahir Khan, executive vice-president of the Institute of Fiscal Studies and Democracy at the University of Ottawa, told Global News.
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“Whatever number you put out, it’s going to be wrong no matter what,” Khan said.
“For better or for worse, I think we are looking at the federal government as the resource that can restart this economy because I think we don’t have anywhere else to turn.”
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Fiscal Snapshot: Scheer says Morneau gave no plan to support reopening
In a statement following the release of the fiscal snapshot on Wednesday, the president and CEO of the Canadian Chamber of Commerce criticized the government for not including a “longer-term fiscal plan” in its fiscal snapshot.
“Today should have been an opportunity to offer Canadians a clear picture of the challenges and a coherent strategy to address them,” Perrin Beatty wrote.
OTTAWA – Finance Minister Chrystia Freeland says the government is making some changes to mortgage rules to help more Canadians to purchase their first home.
She says the changes will come into force in December and better reflect the housing market.
The price cap for insured mortgages will be boosted for the first time since 2012, moving to $1.5 million from $1 million, to allow more people to qualify for a mortgage with less than a 20 per cent down payment.
The government will also expand its 30-year mortgage amortization to include first-time homebuyers buying any type of home, as well as anybody buying a newly built home.
On Aug. 1 eligibility for the 30-year amortization was changed to include first-time buyers purchasing a newly-built home.
Justice Minister Arif Virani is also releasing drafts for a bill of rights for renters as well as one for homebuyers, both of which the government promised five months ago.
Virani says the government intends to work with provinces to prevent practices like renovictions, where landowners evict tenants and make minimal renovations and then seek higher rents.
The government touts today’s announced measures as the “boldest mortgage reforms in decades,” and it comes after a year of criticism over high housing costs.
The Liberals have been slumping in the polls for months, including among younger adults who say not being able to afford a house is one of their key concerns.
This report by The Canadian Press was first published Sept. 16, 2024.
OTTAWA – Statistics Canada says manufacturing sales rose 1.4 per cent to $71 billion in July, helped by higher sales in the petroleum and coal and chemical product subsectors.
The increase followed a 1.7 per cent decrease in June.
The agency says sales in the petroleum and coal product subsector gained 6.7 per cent to total $8.6 billion in July as most refineries sold more, helped by higher prices and demand.
Chemical product sales rose 5.3 per cent to $5.6 billion in July, boosted by increased sales of pharmaceutical and medicine products.
Sales of wood products fell 4.8 per cent for the month to $2.9 billion, the lowest level since May 2023.
In constant dollar terms, overall manufacturing sales rose 0.9 per cent in July.
This report by The Canadian Press was first published Sept. 16, 2024.
TORONTO – Strength in the base metal and technology sectors helped Canada’s main stock index gain almost 100 points on Friday, while U.S. stock markets climbed to their best week of the year.
“It’s been almost a complete opposite or retracement of what we saw last week,” said Philip Petursson, chief investment strategist at IG Wealth Management.
In New York, the Dow Jones industrial average was up 297.01 points at 41,393.78. The S&P 500 index was up 30.26 points at 5,626.02, while the Nasdaq composite was up 114.30 points at 17,683.98.
The S&P/TSX composite index closed up 93.51 points at 23,568.65.
While last week saw a “healthy” pullback on weaker economic data, this week investors appeared to be buying the dip and hoping the central bank “comes to the rescue,” said Petursson.
Next week, the U.S. Federal Reserve is widely expected to cut its key interest rate for the first time in several years after it significantly hiked it to fight inflation.
But the magnitude of that first cut has been the subject of debate, and the market appears split on whether the cut will be a quarter of a percentage point or a larger half-point reduction.
Petursson thinks it’s clear the smaller cut is coming. Economic data recently hasn’t been great, but it hasn’t been that bad either, he said — and inflation may have come down significantly, but it’s not defeated just yet.
“I think they’re going to be very steady,” he said, with one small cut at each of their three decisions scheduled for the rest of 2024, and more into 2025.
“I don’t think there’s a sense of urgency on the part of the Fed that they have to do something immediately.
A larger cut could also send the wrong message to the markets, added Petursson: that the Fed made a mistake in waiting this long to cut, or that it’s seeing concerning signs in the economy.
It would also be “counter to what they’ve signaled,” he said.
More important than the cut — other than the new tone it sets — will be what Fed chair Jerome Powell has to say, according to Petursson.
“That’s going to be more important than the size of the cut itself,” he said.
In Canada, where the central bank has already cut three times, Petursson expects two more before the year is through.
“Here, the labour situation is worse than what we see in the United States,” he said.
The Canadian dollar traded for 73.61 cents US compared with 73.58 cents US on Thursday.
The October crude oil contract was down 32 cents at US$68.65 per barrel and the October natural gas contract was down five cents at US$2.31 per mmBTU.
The December gold contract was up US$30.10 at US$2,610.70 an ounce and the December copper contract was up four cents US$4.24 a pound.
— With files from The Associated Press
This report by The Canadian Press was first published Sept. 13, 2024.
