Canada’s economy will clock its steepest decline on record in the coming months, and unemployment is set to rise to its highest level in nearly a quarter century, a new CIBC forecast says.
The good news is that this economic crisis sparked by COVID-19 “has a visible end point in a way recessions don’t,” economists Avery Shenfeld, Benjamin Tal and Royce Mendes wrote in the forecast released Monday.
But in the meantime, the country will experience financial pain. The forecast predicts Canada’s economic output will shrink at a 15-to-20-per-cent annual pace in the second quarter, the fastest contraction in records going back to 1962.
The CIBC economists see unemployment jumping to above 9 per cent by the summer, from its current 5.7 per cent. If that happens, it will be the country’s highest jobless rate since 1997.
That spike in joblessness seems to be happening right now. Prime Minister Justin Trudeau said last week that the country saw 500,000 applications for employment insurance in a week, up from 27,000 in the same period a year earlier.
“Some countries, including China and South Korea, have used aggressive testing, as well as social distancing, to have caseloads peak a few months after the onset,” the CIBC economists wrote.
“If the U.S. and Canada can accomplish that feat (which isn’t yet apparent), we might get a return to at least some growth in (the July-September period).”
The CIBC economists’ forecast for Canadian unemployment is more optimistic than what experts are predicting for the U.S., where James Bullard, president of the Federal Reserve Bank of St. Louis, predicted a 30-per-cent unemployment rate before the middle of this year.
Economists at investment bank Goldman Sachs see the U.S. economy shrinking at an incredible 24-per-cent pace in the second quarter.
“[E]arly data points over the last week strengthen our confidence that a dramatic slowdown is indeed already underway,” they wrote, as quoted at Barron’s.
“In some U.S. states, authorities have now issued statewide shutdown orders to slow the pace of virus spread and avoid overwhelming the health care system, measures that will further reduce the level of economic activity.”
‘Not the start of a lengthy Great Depression’
Even when the outbreak subsides, we could continue to see some supply shortages and flight restrictions because of the need to watch out for a second wave of the virus, the CIBC forecast noted. Putting a complete end to the emergency means finding a way to neutralize the threat.
“We don’t need a complete cure. A drug that lowers hospitalization and mortality rates enough could obviate the need for the most aggressive social distancing efforts for younger or non-health-compromised individuals.”
Because there is a clear end game in sight, “it’s not the start of a lengthy Great Depression,” the CIBC economists wrote.