Posted Thursday November 19, 2020


A slowing economic recovery – The Conference Board of Canada releases its Provincial Economic Outlook

In its latest Provincial Economic Outlook, The Conference Board of Canada forecasts that localized closures and a retrenchment in household spending and business activity will hold back the pace of economic recovery into mid-2021.

For most Canadian provinces, economic activity is not expected to return to pre-COVID-19 levels until the second half of 2021. However, the economic outlook for Canada’s provinces differs because of the varying effects of the pandemic on different industries across the country. Meanwhile, federal and provincial governments will record massive deficits this year that will likely result in weak public spending growth once the pandemic is behind us.

“We expect global real GDP to decline by 4.7 per cent this year,” says Pedro Antunes, Chief Economist at The Conference Board of Canada. “The Global economy partly recovered in the third quarter, but a second wave of the virus, and a delay in additional stimulus measures in the United States, will hamper the recovery in the fourth quarter.”

Looking ahead, The Conference Board of Canada forecasts that Canada’s pace of economic recovery will flatten, if not stall. While economic activity is fully restored in some sectors, many will not see a return to normal until a vaccine is available to the public, both in Canada and globally. And for some industries, difficulties will persist for the foreseeable future.

Moreover, the arrival of colder weather, coupled with a steep rise in the number of COVID-19 cases in many provinces, is expected to disrupt the economy’s recovery. The health measures and testing currently in place should prevent another full shutdown of economic activity, but localized and regional shutdowns are likely to continue and weaken the pace of Canada’s recovery.

Extraordinary monetary and fiscal measures have supported businesses and household income, especially that of households. In fact, despite the loss of jobs, The Conference Board of Canada is calling for aggregate household real disposable income to post a record gain in 2020, up more than 9 per cent. Consumer spending should accelerate in 2021 as employment more fully recovers and the health risks associated with COVID-19 dissipate.

The tumultuous economic environment, both in Canada and globally, provides little incentive for new business investment. Real business investment is forecast to contract by nearly 11 per cent this year, a prospect that bodes poorly for adding to Canada’s productive capacity. Next year, business investment is expected to recover modestly. The incoming change of government in the United States is expected to settle trade uncertainty and access to the U.S. market, a situation that could help rekindle investment in Canadian automotive and other manufacturing.

Among Canada’s provinces, economic recoveries are underway. But the path back to normal will vary by industry and by province. Looking ahead to 2021, Canada’s overall, real GDP is forecast to shrink by 6.6 per cent in 2020. Solid gains in 2021 (up 5.6 per cent) and 2022 (3.4 per cent) will not be enough to bring Canada’s economy back to full potential. The situation suggests that labour markets will rebalance slowly, with the unemployment rate remaining above 2019 levels through to the end of 2023.

Key findings:

The Newfoundland and Labrador economy is expected to contract by 5.1 per cent this year, constrained by the impacts of COVID-19, as well as a steep drop in world oil prices. The pandemic led to a near shutdown of the province earlier this year, affecting everything from stores and restaurants to major industry players. Despite the negative news, the overall decline in real GDP in Newfoundland and Labrador is forecast to be smaller than the national average for 2020.

Prince Edward Island is in the midst of its largest recession on record. Recent drivers of growth such as immigration and tourism have been severely hampered by the ongoing global pandemic. While the Atlantic bubble—which permits travelers from any of the other three Atlantic provinces—has mitigated some of the damage, the second-quarter drop of 12 per cent is the largest in provincial GDP on record. The availability of a vaccine in mid-2021, along with the re-opening of the United States-Canada border, should improve tourism and immigration and help the province return to pre-pandemic levels by early 2022.

Nova Scotia has kept daily increases of COVID-19 cases steadily low amid the second wave in Canada. This gives the provincial government room to ease some of its physical distancing measures in the fall, including extended operating hours for restaurants and bars, as well as more flexibility for larger gatherings. We expect the province’s real GDP to decline by 6.1 per cent in 2020. In 2021, strong residential investment, a recovery in global demand, and the start of the $10-billion Goldboro LNG project will drive a 3.2 per cent rebound in GDP. The provincial economy is expected to fully recover to pre-COVID levels by mid-2022.

New Brunswick’s economy is poised to fare among the best in Canada. Its employment as of October was 2.3 per cent below February levels—better than the national average decline of 3.3 per cent. A relatively high ratio of public sector workers to overall workers is historically credited with mitigating past recessions in the Atlantic province, but there are a variety of factors keeping activity upbeat this time around. All told, New Brunswick’s GDP is forecast to fall 5.2 per cent in 2020.

Quebec faces a very challenging winter. With COVID-19 cases once more on the rise, top-tier restrictions are now in place in nearly all regions lying along the St. Lawrence River. As winter approaches and COVID-19 continues to drain the confidence of consumers and businesses, weak demand in the economy raises the worrying prospect of a decline in economic activity in the fourth quarter. The likely return of a partial shutdown will slow the recovery, contributing to an overall 6.7 per cent contraction in real GDP in 2020. A protracted recovery is expected, with GDP expected to grow by 4.6 per cent in 2021.

Ontario’s economy has shown bright spots in a cloud of muddy data. The recovery in employment has lagged that of many other provinces, but job gains have been solid in financial services and professional services, both high-paying industries. Moreover, manufacturing sales in the province fully recovered in August before declining slightly in September. And in line with other provinces, household spending and housing markets have also done well despite the pandemic. We expect the economy to struggle through the fourth quarter but rise by 5.2 per cent next year.

Manitoba has coped relatively well during Canada’s first COVID-19 wave earlier this year, but the province is facing challenges given the recent rise in cases. Manitoba’s real GDP is expected to fall by 6.2 per cent this year, slightly softer than Canada’s contraction of 6.6 per cent. It is then expected to rise by 3.5 per cent next year, noticeably slower than Canada’s rebound of 5.6 per cent. Given the recent spike in COVID-19 cases, we expect Manitoba’s economic recovery to be delayed until 2022.

The Saskatchewan economy declined by 0.8 per cent in 2019, and like all other regions, the pandemic is at the forefront of the province’s economic woes this year. Overall, real GDP in the province will fall 4.9 per cent this year, followed by a 4.5 per cent rebound in 2021. Although the economic outlook for Saskatchewan is bleak, some optimism is warranted, as the province has been able to weather the storm caused by COVID-19 better than many provinces.

Alberta now finds itself in the midst of a much greater outbreak of the virus, which stands to hurt the province’s economic recovery. The daily case counts in November have nearly tripled. As we head into 2021, with the virus spreading faster than ever, a scenario in which the province implements stricter lockdown measures is possible. Regardless, business uncertainty and limited activity from households will keep the pace of recovery slow in the first half of 2021, but a bounce-back of 6.0 per cent is on the horizon for Alberta next year.

The Conference Board of Canada’s last provincial forecast said that British Columbia was projected to lead the country in minimizing its economic damage this year. However, the renewed spread of COVID-19 has tempered the pace of recovery in the province. New cases of the virus began climbing in August and the arrival of a second wave was officially declared in B.C. on October 19. We now forecast that provincial real GDP will drop by 6.1 per cent in B.C. this year and grow by 4.9 per cent in 2021.


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ISSN 0824-45
Copyright, 2020

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