Economic Contraction in Canada Seen Five Times Worse Than 2009

Bloomberg
Economic contraction in Canada seen five times worse than 2009 Bloomberg | James Alexander Michie

TORONTO, ON - MAY 14: Kensington Market area streets now have signs closing off traffic to the general public as well as reminding people to share the space by physical distancing. COVID-19. CORONAPD Toronto Star/Rick Madonik (Rick Madonik/Toronto Star via Getty Images)

Economists are slashing forecasts for Canadian output again as the country haltingly reopens with large parts of the economy still shut down.

Canada’s economy will shrink by 42% annualized in the three months through June 30 from the prior quarter, according to the median forecast in a Bloomberg survey of economists. The magnitude is staggering, with the expected decline almost five times the largest quarterly contraction during the 2008–09 financial crisis.

“We know March was terrible and April is going to be even worse so the starting point is horrendous for the second quarter,” BMO Chief Economist Doug Porter said by phone.

BMO has one of the more bearish forecasts with 2Q GDP down 44%. However, the bank expects a substantial rebound in the third quarter.

Canada’s economy has taken a double hit from the Covid-19 pandemic and plunging oil prices. After nearly two months of strict social distancing measures and business closures, the country is starting to slowly ease restrictions.

The labor market has weakened significantly with 2 million Canadians losing their jobs in April. And for those that remain working, many have reported a drop in hours.

WHAT BLOOMBERG’S ECONOMISTS SAY

“The Canadian economy is in the midst of an unprecedented contraction. The loss of 2 million jobs in April — just under 10% of the pre-shock labor force — put the combined March-April employment decline at just over 3 million. However, that significantly understates the degree to which activity has ground to a crawl in the current quarter.”

– Andrew Husby, Bloomberg Economics

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Source: Shelly Hagan, Erik Hertzberg, and Kyungjin Yoo | Bloomberg

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