IN its latest Provincial Economic Outlook, the Conference Board of Canada forecasts that the recovery from the COVID-19 pandemic will be more prolonged than originally anticipated.
With unprecedented declines in economic activity during March and April, and real Gross Domestic Product (GDP) forecast to drop 12.1 per cent in the second quarter, the cumulative impact will drag Canada’s real GDP for the entire year down by 8.2 per cent, according to the Conference Board. Even with an economic rebound gathering steam in the third quarter, it will take until the end of 2021 for Canada’s economy to return to its pre-pandemic output.
“The impact of the virus on the economy will be with us for years,” said Pedro Antunes, Chief Economist at the Conference Board of Canada. “Every province in Canada has incurred the wrath of COVID-19 with sharply negative growth this year. While some provinces are faring better than others, every region of Canada has a long road ahead before fully returning to normal.”
The outlook for the Canadian economy, especially the trade sector, depends on developments south of the border. The Conference Board forecasts that the American economy will recover in the third and fourth quarters of this year and expand at a 5 per cent pace in 2021. However, downside risks to the U.S. outlook have accelerated sharply since the beginning of July as a surge in COVID-19 cases in several states has led to the re-closures of bars, dine-in restaurants, and other outlets. Canadian exporters will be hurt if U.S. economic growth drops below the Conference Board’s current assumptions.
Among Canada’s provinces, energy producers Alberta, Saskatchewan and Newfoundland and Labrador have been hit hard not only by the coronavirus, but also the collapse in world oil prices from $60 per barrel to current prices in the $40 per barrel range. On the positive side, Maritime provinces will record a less steep decline in economic activity this year due to lower cases of COVID-19 compared with more populated provinces. This enabled provinces such as Nova Scotia and New Brunswick to re-open factories and outlets sooner than other provinces.
Ontario and Quebec would have fared even worse this year were it not for the ability of employees in the financial sector and other business services industries to work remotely. The impact on household incomes has also been mitigated by government support programs that will help spur a recovery in retail spending over the second half of the year.
Looking ahead to 2021, the energy-producing provinces should recover as economic activity rebounds. These provinces, especially Alberta, will also benefit from increases in global oil demand.
British Columbia is forecast to record the best overall performance during the 2020-21 period as work on major energy projects continues. Also, the provincial government in B.C. was in a better fiscal position heading into the pandemic and provided large doses of fiscal stimulus to combat the negative effects of the pandemic.
- After growing by 5.3 per cent in 2019, real GDP in Newfoundland and Labrador is forecast to contract by 7.1 per cent this year. Some of the most severe impacts have occurred in customer driven sectors such as arts and entertainment, and accommodation and food services due to the loss of both local and tourist spending.
- Barring a second wave of the virus, Prince Edward Island’s economy is expected to return to trend levels of growth by the end of 2021. Still, the second quarter drop of 15 per cent will be the biggest on record for Canada’s smallest province and result in an overall annual contraction of 4.9 per cent in provincial GDP this year.
- Nova Scotia’s economy was in trouble before the pandemic hit the province due to weak economic growth. Real GDP is expected to drop by 7.6 per cent this year before expanding by 4.6 per cent in 2021. The provincial fishery has been severely damaged by the global collapse in lobster demand linked to COVID-19.
- New Brunswick’s New Brunswick’s economy has been hit hard this year, with real GDP forecast to decline by 8.1 per cent in 2020—in line with the national decline. A rebound in global demand for resources, coupled with government stimulus, will help generate a robust 7.1 per cent rebound in 2021.
- The COVID-19 pandemic has hit Quebec the hardest of all the provinces and this will lead to a decline in real GDP of 7.2 per cent this year. Quebec’s aerospace industry has been especially damaged by the unprecedented decline in tourism and global air travel, a sector that will take longer than others to recover.
- Ontario’s economy will record one of the worst declines in real GDP growth this year with an anticipated drop of 7.6 per cent. A key factor contributing to the collapse in economic activity in the province, especially in the second quarter, has been plunging auto exports to the key U.S. market.
- Although there has been a recent upswing, Manitoba‘s COVID-19 caseload has been the envy of many provinces. While the province’s real GDP is forecast to fall by 5.8 per cent in 2020, this is quite good compared to Canada’s overall contraction of 8.2 per cent. Global travel restrictions are hurting the near-term outlook for manufacturers of transportation equipment.
- The Saskatchewan economy grew only 0.8 per cent in 2019 and the pandemic has added to the province’s woes. Overall, economic growth is forecast to plummet by 8.7 per cent this year, followed by a modest 4.7 per cent rebound in 2021. The economy has been hurt by difficulties in the mining sector, including the shutdown of several potash mines.
- Alberta has been doubly hit by the COVID-19 crisis because of the additional impact of a sharp decline in global oil demand and oil prices. Real GDP is forecast to plunge by 11.3 per cent this year, before recovering and expanding by 7.9 per cent in 2021. Consumer spending and consumer confidence in the province have been hurt by the recession.
- British Columbia managed to flatten its COVID-19 curve relatively quickly. On June 24, the province entered phase three of its four phase “Restart Plan.” As a result, real GDP is expected to decline by 5.5 per cent this year before rebounding and expanding by 6.7 per cent in 2021.