New Conference Board study: Economic recovery could run out of steam in late 2020

Strong gains seen immediately after the economy reopened in late spring have been all but wiped out

New Conference Board study: Economic recovery could run out of steam in late 2020

The Conference Board of Canada is predicting a slower, and maybe even flat, pace of economic recovery between now and mid-2021.

“Progress has been made,” said Pedro Antunes, chief economist at The Conference Board of Canada. “But we nevertheless expect that localized closures and a retrenchment in some segments of household spending and business activity will hold back Canada’s pandemic recovery into the middle of next year.”

Despite initial strength immediately after the economy reopened in late spring, recovery is expected to slow down with the advent of the winter months and the steady rise of COVID-19 infections in Canada’s most populated cities.

Much of the weakness will stem from the hardest-hit sectors like the airline, food service, manufacturing, and motion picture industries. Investment in non-energy, non-residential industries will drop from the nearly $150 billion (annualized) at present to around $130 billion early next year, the board said.

“With the Canadian economy suffering through its sharpest recession in living memory, firms are likely to delay any major investment decisions until there is more clarity surrounding the pandemic,” the board said. “Even after the economy emerges from the crisis, the negative effects of the pandemic will linger. Because capacity utilization rates have dipped and demand will take time to fully recover, many firms will have little incentive to invest in additional capacity until well after other sectors of the economy have recovered.”

The board is projecting a decline of 6.6% in real GDP this year, a shrinkage that even solid gains in 2021 and 2022 will not likely offset. The board is also forecasting the Bank of Canada to keep interest rates frozen until “at least 2023.”

“Over the medium term, provincial and federal governments will struggle to rein in spending, while rising interest rates will dampen gains in business investment and household spending,” the board said. “Canada’s unemployment rate is not expected to return to pre-COVID levels until 2025.”