How Will COVID-19 Impact the Canadian Economy Long-Term?
COVID-19 has most likely done permanent damage to the Canadian economy and left it in a big hole. The economic downturn has been historic with the sharpest GDP contraction in history. The biggest questions right now are, which sectors have been hit the hardest and what will the economic recovery look like?
No one really knows what the economic recovery will look like. Politicians want to believe it will be a swift, “V” shaped recovery. But the odds of that happening is remote, mostly because of the persistent health risks associated with COVID-19, fears of a second wave of the coronavirus & regional flare-ups, and the damage the pandemic has wreaked on the Canadian economy.
The best case scenario would be a “U” shaped recovery. Even then, Canada’s gross domestic product (GDP) isn’t expected to reach its pre-pandemic levels until early 2022. Even that’s not very encouraging. The Canadian economy was slowing down before the coronavirus.
In the fourth quarter of 2019, Canada’s GDP was a measly 0.3%, the worst showing in almost four years. Canada’s GDP in the first quarter meanwhile crashed -8.2%. Keep in mind, the economy was only shuttered for the last week or so of the quarter. It’s safe to say Canada’s second quarter GDP, in which much of the entire economy was mostly closed, will be far worse. So, getting back to pre-COVID-19 levels in 2022 isn’t exactly going to juice the Canadian economy.
Which Sectors Have Been Hurt Hardest by COVID-19?
Regardless of what kind of shape the economic recovery takes, it will impact the Canadian economy and stocks differently. Case in point, during the recession that followed the 2008/2009 Financial Crisis, goods-producing sectors were hit the hardest, accounting for 70% of job losses. Examples of goods-producing sectors are businesses that produce tangible goods, like manufacturing, construction, and agriculture.
It’s a different story in 2020. Goods-producing sectors only account for 20% of total job losses. The vast majority, about 70% of the job losses, come from the service sector. The service sector provides services, not material commodities. Service sector businesses include banks, retail, hospitality, real estate, computer services, recreation, and media.
With manufacturing, there is pent up demand for products if the economy closes. Not so with the service sector, you can’t get an extra-haircut or spend lost time in a hotel. That economic activity is lost for good.
Moreover, the fresh injection of income from returning to work and new spending for services are not expected to make up ground lost to months of shutdown and social distancing. That’s why some believe the service sector will never truly fully recover the lost output that occurred during the lockdown.
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The COVID-19 pandemic has had a devastating impact on the Canadian economy. The economy will eventually bounce back, but some sectors will do better than others during the recovery. And that will have a big impact on corporate earnings. Investors don’t have to wait for the economic recovery though to make money on stocks. The trading professionals at Learn-To-Trade.com can help you trade more confidently and profit more consistently, no matter what the markets are doing.
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