Conference Board sees rebound in 2021
Hold on tight for what will be Canada’s worst-ever economic contraction.
That’s the news coming from the Conference Board of Canada in its latest outlook summary document for the country. The board is forecasting a drop in gross domestic product of 8.2 percent for Canada as a whole, and a drop of 3.6 percent for Ontario.
The good news is, the board says, the economic recovery is underway and will gain further steam as governments allow businesses to resume operations, and relax physical distancing measures.
The board is forecasting a bounce-back of 6.7 percent in national GDP growth in 2021 and a further 4.8 percent growth in 2022. Although it adds that the extent of the damage caused by the pandemic means a return to normal won’t be quite as quick as some have hoped.
“This rebound is more in line with a ‘U’ shaped recovery as opposed to a ‘V’ recovery that would have seen growth increase at a faster pace,” says Alicia Macdonald, associate director of economic forecasting. “It reflects the tremendous uncertainty that will be a fact of life in the world economy over the next year or so as economies grapple with the continued health risks associated with the virus.”
One of the challenges for the national economy is unemployment. The pandemic displaced more than five million Canadians from work to at least some degree between March and May. While people are gradually returning to work as businesses re-open, the Conference Board projects employment to remain about 1.1 million lower at the end of this year than it was at the end of 2019.
Consumer spending is expected to suffer as a result. After an 11.3-percent drop in consumer spending in the first quarter of 2020, the board projects a further drop in spending of 57.5 percent in the second quarter.
Business confidence is also expected to recover slowly. Exports are forecast to contract by 14.3 percent in 2020 as a result of reduced global demand, and businesses are reluctant to invest in new capacity. The board expects a drop of 11.3 percent in private sector investments this year.
Finally, the board expects the federal deficit to end the year at more than $250 billion—by far the largest in the country’s history.
Ontario recovery to start in second half
The pandemic has hit Ontario hard. While the Conference Board expects the province’s GDP to drop by 3.6 percent by the end of the year, a contraction of nearly 23 percent in the second quarter has more than countered any expectations for growth that were in place at the beginning of this year.
The board expects Ontario’s economy to pick up steam in the second half of the year the province moves to the second stage of its re-opening plan. The board expects growth of 5.9 percent in 2021, but cautions that the province’s economy won’t return to levels seen in the fourth quarter of 2019 much before the second quarter of next year.
Many of the same challenges faced by Canada’s economy—large numbers of job losses, reduced consumer spending, and a lack of business confidence—will also bog down Ontario’s economy.
The good news is, demand for housing in Ontario remains strong. The board expects housing starts to jump in the second half of the year. After a drop of 22 percent in residential investment in the second quarter, the housing market is expected to pick back up over the rest of the year. The Conference Board sees housing starts rising to around 80,000 per quarter in 2021, and growth rates of 3.4 percent in 2021 and 2.5 percent from 2022 to 2024.
What is less certain is how non-residential investment will fare. With COVID-19 demonstrating that most office work can be conducted remotely, and that few office facilities are properly equipped to allow for physical distancing, the pandemic may cause a widespread reduction in demand for office space.
The Conference Board reports that business confidence reached a record low in the first quarter of this year, leaving many businesses wary about investing in their operations. It expects non-residential investment to fall by 5.9 percent in 2020 before rebounding to 5.2 percent growth in 2021.