What Is the Outlook for the Canadian Economy?
It doesn’t appear as though the Canadian economy will experience a quick recovery. In fact, because of the devastating effects of COVID-19, the Canadian economy is expected to underperform for the next decade, as low commodity prices, weak foreign demand, and high household and business debt will weigh down any economic growth.
Capital Economics, a U.K.-based economic research company has reported that Canada’s gross domestic product (GDP) will not return to its pre-COVID-19 levels until at least 2023. That’s not great news on any level, since Canada’s GDP before the pandemic was pretty weak. Fourth quarter GDP was the weakest in four years and overall GDP for 2019 was a paltry 1.6%.
Canada’s GDP is projected to tumble 6.3% in 2020. If the pandemic gets worse, like we’re seeing in the U.S. right now, the short and long-term projections for Canada’s GDP will be even lower.
Despite the huge increase in the number of jobs created in June, Canada is not expected to get back to its pre-COVID-19 level of jobs until 2022. Canada added 953,000 jobs in May, but there are still 3.1 million Canadian affected by the COVID-19 fueled economic shutdown. This includes 1.8 million Canadians who lost their jobs, are on furlough, or are faced with reduced hours.
Even after 2022, the economic recovery will be slow. Over the next 10 years, Canada’s GDP is projected to average just 1.5%. On the bright side, longer-term growth is projected to return after 2030.
Why Will Canada’s Economic Growth Be So Slow?
For the next decade, it is thought that high personal and business debt will hold back productivity growth, especially compared to the U.S. At the end of 2019, total debt was 294% of GDP. Household debt was at 101% and non-financial corporate debt was 114%.
The Canadian government has provided businesses with loans, but those will all need to be paid back. The Canada Emergency Response Benefit (CERB) has certainly helped out-of-work Canadians keep their head above water, but that money is taxable and will need to be repaid in 2021.
That debt will be cheap though. The Bank of Canada is expected to keep its key lending rate below one percent for the rest of the decade. Even then, future rate hikes will be modest, approaching just 3.5% by the end of 2050.
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