Nearly three out of five surveyed economists say the risk of a derailed recovery is high
Canadian markets should brace for much slower economic recovery over the next half-year amid a resurgence of COVID-19 cases, according to a Reuters poll of nearly 50 economists.
While the Oct. 15-21 survey predicted economic expansion at an annualized 44.5% in Q3 following contractions of 8.2% and 38.7% in the first and second quarters, growth is expected to significantly decelerate to 5% in Q4 and 5.2% in Q1 2021.
A forecast made earlier this year pegged 2020’s overall economic decline at 5.9%, which Reuters analysts said was the worst reading in at least six decades.
Almost 60% of respondents said that the risk of a fresh outbreak derailing Canada’s economic recovery was either “high” or “very high.”
“The second wave has already forced Ontario and Quebec to shut down businesses like restaurants, bars, and gyms for 28 days. Only with the virus under control can provinces safely reopen the entire economy. Until then, the next phase of the recovery will be slow and choppy,” said Sri Thanabalasingam, senior economist at TD.
And while Bank of Canada Governor Tiff Macklem recently said that further rate cuts remain an option to stimulate the economy, virtually all respondents to the Reuters survey said that the central bank should not take that step.
“Lowering interest rates below zero would likely have only a marginally positive impact on economic growth,” said Tony Stillo, director of Canada economics at Oxford Economics. “However, the potential downside implications of such a move on the financial system and broader economy would likely outweigh any positive impacts, especially in the medium to longer term.”
