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Economic Outlook March 2020: Canadian economy battered by global pandemic and oil price slump

Published on: Mar 20, 2020

The fallout of the COVID-19 pandemic and all of its associated economic and financial disruptions are expected to cause the Canadian economy to falter. The economy is tracking a small decline in the first quarter. We expect a significant contraction in the second quarter, with the weakness fading in the third quarter. However, it is critical to understand that COVID-19 will eventually pass.

Our base case forecast is for the Canadian economy to experience a 0.2 percent decline in real GDP this year, concentrated in the second quarter. The degree of economic weakness is tempered by the coordinated effort across many governments and central banks to provide fiscal and monetary stimulus. The Bank of Canada is expected to cut a further 50 basis points, lowering the overnight rate to 0.25 percent. The federal government has announced funding to address the direct impact of COVID-19 and measures to help support funding for businesses. The upcoming Federal Fiscal Update will also have economic stimulus. Provincial governments will also respond, but will be constrained by fiscal pressures. The policy measures cannot fully offset all of the economic weakness, but they can help mitigate some of the downside risk and they can have a positive psychological impact. As COVID-19 is contained, with the number of active cases diminishing, and as the impact of stimulus is felt, we look for a rebound of economic growth later this year and through 2021.

How should businesses respond? First and foremost, businesses need to address the risks, putting their people first. Second, management actions will be needed to navigate through the difficult economic times and create business continuity. This can include managing the disruption to supply chains, cash flows, and liquidity. Then there is the opportunity to learn from the crisis and implement decisions that will make the business stronger, such as improved work flexibility or key investments. Finally, business leaders need to prepare for the eventual economic rebound that could be months or a few quarters away. Again, the economic weakness is a valley and the key focus is to support people and manage business through to the other side of that valley.

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