Easing social distancing measures will alleviate some of the stress in the economy although persistently low oil prices will continue to weigh on growth. Oil prices are down $35 since the start of the year and are projected to average US$31 in 2020, just over half of 2019\u2019s average price. This lower price environment will cut investment and result in permanent job losses. The impact will be felt disproportionately in the oil-producing provinces but will have spill-over effects across the country.<\/p>\n
The drop in oil prices has already had a marked impact on Canada\u2019s dollar which lost 10% against the US dollar before recovering some ground to stand at about 7% below its year-end level. Canada\u2019s currency is likely to remain around 70 US cents in the near term as uncertainty about the depth and duration of the crisis sees investors gravitate to the safety of US dollars.<\/p>\n
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Economic forecasts<\/h4>\n
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1 – QoQ annualized % change | 2 – %, period average | 3 – %, end of period | 4 – upper bound of 25 basis point range<\/p>\n
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Getting back to normal will be a gradual process<\/h4>\n
Some industries like education and public sector services should recover relatively rapidly with students returning to classrooms in September and demand for public services ramping up quickly once the worst of the coronavirus has passed. Other industries, like retail and food and accommodation services, will continue to face challenges. Canadians will initially be cautious about going out, and are likely to focus first on paying deferred bills and rebuilding their nest eggs. How quickly construction activity gets back online will be determined by the ability of homeowners to navigate through a period of heavy job losses.<\/p>\n
Home resales are expected to fall 20% this year. Job losses, reduced work hours and income as well as equity-market declines will keep many buyers out of the market. Governments and banks have policies in place to help owners through this tough patch which should limit forced-selling and a glut of properties coming onto the market. But that doesn\u2019t mean prices won\u2019t come under downward pressure. As in many other industries, we expect the recovery in housing will be gradual. Low interest rates will be a stabilizing force, though it will take a rebound in the labour market as well as a pickup in immigration before sales really accelerate. Our view is that most of the recovery will occur in 2021.<\/p>\n
2020 will be a year for the record books<\/h4>\n
Canada is likely headed for the deepest economic downturn on record (going back to 1961). The hit to the economy was quick and powerful, and even with the recovery expected to start in the third quarter, real GDP is forecast to fall by almost 5% this year. Canada will just barely outperform the US where policies to limit the virus\u2019 spread were slower to materialize and the economy is projected to contract by 5.5%. Even with government policies aimed at supporting workers, unemployment rates are headed higher. Reports that claims for employment insurance are surging points to unemployment running in double-digits in the near term. In Canada, the government\u2019s wage subsidy program<\/a> (government will pay 75% of wages of workers at companies where revenues have fallen at least 30%) may limit how high the unemployment rate stays once the program is rolled out. Still, Canada\u2019s unemployment rate will likely average 14\u00bd% in the second quarter and ease toward 8% by year-end.\n<\/p>\n \nWhile the headline numbers will look ugly, they will mask a serious increase in underemployment as workers are paid to stay home either by their companies or the government\u2019s wage subsidy program.\n<\/p>\n
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