While the Canadian economy remains resilient, some analysts are reassessing their GDP forecast as COVID-19 rages across the country, forcing lockdowns and restrictions. Royal Bank of Canada says restrictions in some provinces in April will put Canada’s growth streak at risk, although the lockdowns remain targeted.

“The rest of the economy has continued to grow. Still, we’ve knocked down our Q2 growth forecast slightly (to +3.5% annualized) which largely offsets assumed stronger performance in Q1—GDP for 2021 as a whole is still seen increasing by 6.3%,” RBC economist Josh Nye said in a recent report.

Bank of Canada, which expects GDP to rise by 6.8% this year after declining 2.4% last year, has also warned of a few headwinds. “A more severe third wave or a more persistent pandemic would lead to additional weakness in output and employment as well as more adverse and persistent effects on confidence,” the Bank noted in its latest monetary policy report. “With a more prolonged period of weak economic activity, some risks that have diminished over time, such as labour market scarring and corporate financial stress, could re-emerge.”

Retail sales also offer some insight into the health of the economy. “The flash estimate for February GDP was +0.5%, but declines in manufacturing and wholesale volumes point to a modest downgrade to +0.4%,” Bank of Montreal economist Benjamin Retzes. “Look for the March flash estimate to show robust growth amid broader reopenings, before April’s likely lockdown-driven contraction.”

Another key drag on the economy is shortages of semiconductors. National Bank of Canada economists believe the shortages could weigh on manufacturing and wholesale sectors, further pulling back economic forecasts.

New COVID-19 cases in Ontario hit record highs throughout mid-April, while other provinces such as Nova Scotia and Manitoba, that had seemingly tamed the virus somewhat, have recently seen a flare-up of cases. However, the vaccination drive has picked up in recent weeks, which could improve Canada’s current 36th rank globally in terms of doses administered per 100 people.

Dawn Desjardins, deputy chief economist at RBC Economics, spoke with the Financial Post’s Larysa Harapyn about the economic assumptions in Budget 2021, and how Canada can expect rapid economic growth after the third wave wave. Desjardins said, “when we look at the pace of economic expansion that we are expecting, it does suggest that rather than waiting until 2023… it looks increasingly like with more fiscal support, with an economy that we believe will emerge from this third wave in the next couple months, growth in the economy will be very rapid. That means that the excess slack in the economy will be absorbed.” Click here to watch the full video. 

Source: Financial Post
Source: Financial Post