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Today had no major Canadian economic releases.
We have issued a revised Canadian macroeconomic forecast. The forecast includes the national, provincial, and financial forecasts. For the first time, we have added preliminary industry projections.
The base case forecast is for the Canadian economy to experience a 10.8 percent contraction this year. After a deep decline in the first half of this year, an economic recovery is expected to begin in the third quarter of the year. This is consistent with a gradual reopening of the economy by provincial governments. But, be mindful that the strong looking growth numbers in the second half of this year mask the fact that it will be from a severely depressed level of economic activity. I would stress that post-lockdown recovery will take a long time. Our base case does not anticipate the level of economic activity returning to its pre-COVID level until Q3 2022.
Our industry forecasts show the breadth of the economic downturn, but also highlight particularly hard-hit sectors. For example, the mining sector is projected to experience a 26 percent contraction this year, while entertainment and recreation is expected to fall 20 percent. The volume of manufacturing is forecast to drop 16 percent, while retail sales will be down 15 percent. All sectors will experience some recovery, but the 2021 growth estimates show that many sectors will have difficulty fully recouping their losses.
In other news, the WHO issued a warning today that countries need to reopen their economies in a gradual way that minimizes the health risks to avoid a second round of infection. Director-General Tedros Adhanom Ghebreyesus of the WHO stressed that “the risk of returning to lockdown remains very real if countries do not manage the transition extremely carefully and in a phased approach.”
I believe that Canada’s provinces are following this approach, but my economist counterparts in the United States are worried that the speed and lack of coordination in reopening Stateside might increase risks of a second round of infection. In fact, this assumption is increasingly being built into many US forecasts. At this point, I am still treating this as a risk to the outlook, but it is a significant one due to the deep integration of the US and Canadian economies. One might speculate that the WHO warning was targeted at the United States.
The US ADP employment reported showed that 20.2 million private sector jobs were lost in April. This report will shape market expectations for the major release of the week, which is Friday’s payroll and labour force survey. Prior to the ADP release, markets were expecting the unemployment rate to hit 16 percent.
Tensions between the US and China are building as the US administration keeps making comments suggesting they are thinking about punishing China for the global pandemic. This would assuredly lead to retaliation. Financial markets appear to be watching the statements but interpreting them as largely rhetoric.
The European Commission is forecasting a 7.5 percent contraction in the European Union this year, with a 6 percent recovery next year.
IHS-Markit Services PMI survey for India shows an extreme collapse. The index for April came in at 5.4. This is an “extreme decline” from previous month’s 49.3 and way below a Reuters poll forecast of 40. The Indian government imposed a nationwide lockdown in late March to stem the spread of the coronavirus. The lockdown has been extended several times since then. However, there is also an international dimension, as the shutdown of economic activity around the world also reduced demand for traded Indian services.
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.