The Conference Board of Canada’s latest forecast document suggests that Canada’s real gross domestic product will grow by 5.3 percent this year and a further 3.5 percent in 2022.

The growth forecasts for the next two years follow an estimated economic contraction of 5.3 percent in 2020, one of the deepest recessions in modern times. The strength of that recovery, however, depends on the successful distribution of COVID-19 vaccines.

“The news that safe and effective vaccines against COVID-19 have begun to be distributed has provided optimism that the pandemic could soon be beaten,” says Pedro Antunes, chief economist at The Conference Board of Canada. “A successful rollout of vaccines will encourage Canadian households to spend some of what they’ve amassed in savings over the past year, which will help bolster the economy.”

Household finances are in great shape thanks to government support and travel bans that have cut spending on foreign travel to almost nothing. Aggregate household savings swelled from $18 billion in 2019 to over $200 billion in 2020. Even with a rebound in spending this year, household balance sheets will average $113 billion, or roughly five times what was normally held in savings in the four years prior to the pandemic.

Many Canadian industries will not fully recover until the second half of 2021, when the health risks associated with COVID-19 will have dissipated, borders re-opened and households and businesses can get back to normal.

“Activities that require in-person transactions continue to be the hardest hit,” says Antunes. “This includes brick and mortar retailers, personal services, culture and recreation, food and beverage services, and anything related to tourism. It will be a long road to recovery.”

Federal and provincial governments continue to provide financial support to businesses and households to help them during the pandemic, and that support will drive up public debt to record levels, putting a strain on government finances and public spending once the crisis is over.

The Conference Board of Canada expects a global recovery as vaccines are made available across advanced and developing economies, which will help bolster business confidence, investment, and trade, especially as borders reopen over the second half of 2021.

As such, economic activity in Canada is forecast to pick-up on its own without the need for the additional fiscal stimulus of between $70 billion and $100 billion that the federal government announced in its November 30 fiscal update. The Conference Board has revised its forecast for real GDP for 2020 from -6.6 percent to -5.3 percent in the new two-year outlook.

The successful rollout of vaccines in Canada and around the world, and no resurgence of the coronavirus, are key factors in the assumptions made for Canada’s economic recovery over the next few years. Still, even if COVID-19 is beaten by the end of 2021, the pandemic will have lasting effects on the economy.

Telecommuting, a reduction in business travel, changes in consumer preferences, and an increase in online shopping will force significant changes on many Canadian businesses. Most concerning, says the board, is the massive increase in federal and provincial/territorial government debt, which will hamper for decades to come governments’ ability to deliver programs.