The major economic release today was the Bank of Canada’s Business Outlook Survey (BOS). The survey was done from February 11 to March 6. The BOS Indicator fell from 0.75 at the end of last year to -0.68 in March showing the dramatic deterioration in business sentiment. However, as economic prospects deteriorated greatly after the initial survey, the Bank conducted two sets of follow up interviews. The first was done from March 13-17 and captured the dramatic decline in sales of consumer-oriented firms, with the exception of a surge in sales of at grocery stores. The Bank noted that, “The impact of the shock on firms was still escalating, with some firms seeing very recent sharp declines in demand and others only expecting them.” The second follow up was done between March 12-18 and the area of investigation was on the economic and financial stress within the energy sector. Most respondents assessed the current shock as worse than 2008 and 2015. Many highlighted increased financial strains. As we highlighted last Friday, a financial-aid program for the energy sector is badly needed.
Oil prices rallied last week on expectations that an OPEC meeting, originally scheduled for today, would be accompanied by a supply reduction announcement, but that meeting was postponed. This triggered a pullback in oil prices today. Clearly, the OPEC member countries and others that coordinate with the cartel (notably Russia) are still negotiating. The meeting is expected to happen on Thursday and markets are speculating over the possibility of a 10 million barrels per day production cut. If this happens, oil prices could rise from current levels, but are likely to remain depressed because excessive inventory levels will still be a hurdle.
There were news reports that Canada’s major banks were in talks with Ottawa to iron out details of a program that will give interest-free loans to small businesses that are struggling due to the pandemic. This loan program was first unveiled in late March and will be complemented by expanded loan programs from EDC and BDC.
I am frequently asked for our current assessment of the economic outlook. Many organizations are updating their planning assumptions. In the current environment, I would stress the importance of doing scenarios under different COVID-19 health assumptions, and we are modeling a range of outcomes. However, for those that want the Deloitte base case forecast, we are updating each week based on the latest information. The latest forecasts will be found in the economics section of the newly released COVID-19 Economic Recovery Dashboard. Commentary on the revised projections will be flagged in the current blog you are reading as well as in the Quarterly Economic Outlook publication. We are currently tracking a 5 percent annualized contraction in the first quarter of 2020, followed by a 23 percent annualized plunge in the second quarter. A rebound is anticipated later in the second half of the year, but the recovery is expected to gradual and take most of 2021.
Craig Alexander is the first Chief Economist at Deloitte Canada. He has over twenty years of experience in the private sector as a senior executive and leading economist in applied economics and forecasting. He performed macroeconomic research, regional and sector analysis, and fiscal market forecasting and modelling. Craig is a passionate public speaker and holds a graduate degree in Economics from the University of Toronto.