Are Both Canada and the U.S. in a Recession?
Canada and the U.S. are both currently battling two recessions. The first is a short-term recession fueled by the coronavirus; eventually the number of infections and deaths will flatten, and a vaccine will be available. The second is a more traditional long-term economic slump; that one is just starting and will take a lot longer to climb out of.
The Canadian economy and U.S. economy are both in the midst of devastating recessions brought on by COVID-19. Despite a shuttering of both economies, the unemployment rates have started to fall in both Canada and the U.S. On top of that, provinces and states have started to open up their economies.
Still, any optimism that the coronavirus is under control is misguided. The number of COVID-19 infections may be falling in Canada, but in the U.S., which just happens to be the world’s biggest economy and Canada’s largest trading partner, the number of coronavirus infections is at record levels. The U.S. actually just passed three million coronavirus cases, roughly a quarter of the world’s total.
The coronavirus is hitting states in the east and south hard, with Florida and Texas going so far as to delay plans to reopen their economies. It’s tough to say this is the expected second wave of COVID-19 to hit the U.S., since the first wave was never really contained.
Won’t a Vaccine and Opening Up the Economy Avoid a Recession?
Suffice to say, the recessions brought on by the coronavirus are well entrenched, but again, COVID-19 will eventually be brought under control. That won’t be enough to return the Canadian economy and U.S. economy back to full strength. There is a more traditional recession brewing and it is expected to last a lot longer.
Why? Won’t people returning to work and businesses opening help juice the two economies? Not at first. A huge number of businesses have permanently closed their doors leaving tens of thousands out of work. Even if demand for those goods and services return, it takes a long time to expand or start a new business to replace those lost ones.
Second, Canadian and American consumer confidence is not exactly robust. Neither is business sentiment. Despite a partial re-opening of the Canadian economy, business sentiment continues to fall. In fact, Canadian business sentiment is at its lowest levels since the Great Recession. Business sentiment this weak doesn’t mark a bottom; it’s just the beginning as companies try to mitigate risk.
The so-called return of COVID-19 and months-long closure of the Canadian and U.S. economies has had an unsettling effect on investors and consumers, all of which will further dampen demand for goods and services and flood down to Bay Street and Wall Street.
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Canada and the U.S. are dealing with not one, but two recessions. The COVID-19 fueled recession has been swift and massive, but it will eventually end. The second recession looks like a more traditional recession and has plunged both economies into a severe contraction; that one will take a lot longer to navigate.
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