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.”
6:20 Coronavirus: Trudeau says federal government went into debt so Canadians ‘wouldn’t have to’
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.
6:20 Fiscal Snapshot: Morneau details how COVID-19 benefits have helped Canadians, businesses
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.”
8:38 Fiscal Snapshot: Scheer says Morneau gave no plan to support reopening
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 – Canada’s unemployment rate held steady at 6.5 per cent last month as hiring remained weak across the economy.
Statistics Canada’s labour force survey on Friday said employment rose by a modest 15,000 jobs in October.
Business, building and support services saw the largest gain in employment.
Meanwhile, finance, insurance, real estate, rental and leasing experienced the largest decline.
Many economists see weakness in the job market continuing in the short term, before the Bank of Canada’s interest rate cuts spark a rebound in economic growth next year.
Despite ongoing softness in the labour market, however, strong wage growth has raged on in Canada. Average hourly wages in October grew 4.9 per cent from a year ago, reaching $35.76.
Friday’s report also shed some light on the financial health of households.
According to the agency, 28.8 per cent of Canadians aged 15 or older were living in a household that had difficulty meeting financial needs – like food and housing – in the previous four weeks.
That was down from 33.1 per cent in October 2023 and 35.5 per cent in October 2022, but still above the 20.4 per cent figure recorded in October 2020.
People living in a rented home were more likely to report difficulty meeting financial needs, with nearly four in 10 reporting that was the case.
That compares with just under a quarter of those living in an owned home by a household member.
Immigrants were also more likely to report facing financial strain last month, with about four out of 10 immigrants who landed in the last year doing so.
That compares with about three in 10 more established immigrants and one in four of people born in Canada.
This report by The Canadian Press was first published Nov. 8, 2024.
The Canadian Institute for Health Information says health-care spending in Canada is projected to reach a new high in 2024.
The annual report released Thursday says total health spending is expected to hit $372 billion, or $9,054 per Canadian.
CIHI’s national analysis predicts expenditures will rise by 5.7 per cent in 2024, compared to 4.5 per cent in 2023 and 1.7 per cent in 2022.
This year’s health spending is estimated to represent 12.4 per cent of Canada’s gross domestic product. Excluding two years of the pandemic, it would be the highest ratio in the country’s history.
While it’s not unusual for health expenditures to outpace economic growth, the report says this could be the case for the next several years due to Canada’s growing population and its aging demographic.
Canada’s per capita spending on health care in 2022 was among the highest in the world, but still less than countries such as the United States and Sweden.
The report notes that the Canadian dental and pharmacare plans could push health-care spending even further as more people who previously couldn’t afford these services start using them.
This report by The Canadian Press was first published Nov. 7, 2024.
Canadian Press health coverage receives support through a partnership with the Canadian Medical Association. CP is solely responsible for this content.
As Canadians wake up to news that Donald Trump will return to the White House, the president-elect’s protectionist stance is casting a spotlight on what effect his second term will have on Canada-U.S. economic ties.
Some Canadian business leaders have expressed worry over Trump’s promise to introduce a universal 10 per cent tariff on all American imports.
A Canadian Chamber of Commerce report released last month suggested those tariffs would shrink the Canadian economy, resulting in around $30 billion per year in economic costs.
More than 77 per cent of Canadian exports go to the U.S.
Canada’s manufacturing sector faces the biggest risk should Trump push forward on imposing broad tariffs, said Canadian Manufacturers and Exporters president and CEO Dennis Darby. He said the sector is the “most trade-exposed” within Canada.
“It’s in the U.S.’s best interest, it’s in our best interest, but most importantly for consumers across North America, that we’re able to trade goods, materials, ingredients, as we have under the trade agreements,” Darby said in an interview.
“It’s a more complex or complicated outcome than it would have been with the Democrats, but we’ve had to deal with this before and we’re going to do our best to deal with it again.”
American economists have also warned Trump’s plan could cause inflation and possibly a recession, which could have ripple effects in Canada.
It’s consumers who will ultimately feel the burden of any inflationary effect caused by broad tariffs, said Darby.
“A tariff tends to raise costs, and it ultimately raises prices, so that’s something that we have to be prepared for,” he said.
“It could tilt production mandates. A tariff makes goods more expensive, but on the same token, it also will make inputs for the U.S. more expensive.”
A report last month by TD economist Marc Ercolao said research shows a full-scale implementation of Trump’s tariff plan could lead to a near-five per cent reduction in Canadian export volumes to the U.S. by early-2027, relative to current baseline forecasts.
Retaliation by Canada would also increase costs for domestic producers, and push import volumes lower in the process.
“Slowing import activity mitigates some of the negative net trade impact on total GDP enough to avoid a technical recession, but still produces a period of extended stagnation through 2025 and 2026,” Ercolao said.
Since the Canada-United States-Mexico Agreement came into effect in 2020, trade between Canada and the U.S. has surged by 46 per cent, according to the Toronto Region Board of Trade.
With that deal is up for review in 2026, Canadian Chamber of Commerce president and CEO Candace Laing said the Canadian government “must collaborate effectively with the Trump administration to preserve and strengthen our bilateral economic partnership.”
“With an impressive $3.6 billion in daily trade, Canada and the United States are each other’s closest international partners. The secure and efficient flow of goods and people across our border … remains essential for the economies of both countries,” she said in a statement.
“By resisting tariffs and trade barriers that will only raise prices and hurt consumers in both countries, Canada and the United States can strengthen resilient cross-border supply chains that enhance our shared economic security.”
This report by The Canadian Press was first published Nov. 6, 2024.
