Quick Rebound, Long Recovery: COVID-19 and the Canadian Economy

July 10, 2020 2 Minute Read

Quick Rebound, Long Recovery: COVID-19 and the Canadian Economy

With the first half of 2020 behind us, the economic future is anything but certain.

While the beginning of June brought optimism about the financial markets, that sentiment appears to have been short-lived.

As COVID-19 cases continue to surge in the U.S. and around the world, and trade tensions increase between Canada and its southern neighbour, it seems clear that the road to recovery could be a long one.

Still, with central banks committed to fiscal stimulus and low interest rates, there’s more reason for optimism than initially meets the eye. Let’s take a closer look.

The Short-Term Picture

The International Monetary Fund (IMF) recently revised its economic outlook, now calling for a deeper global recession and a slower economic recovery in 2021. The IMF forecast that real GDP will fall by 4.9% in 2020, before growing by 5.4% in 2021.

It’s a downward revision from their April predictions, but one that comes at a time of uncertainty. The IMF has acknowledged that predictions in the time of COVID are anything but certain.

Medical treatments and new financial stimulus could accelerate the economic recovery, while the risk of increased COVID cases will remain until a vaccine is found.

Quick Rebound, Long Recovery: COVID-19 and the Canadian Economy

Debt and Stimulus

The first half of 2020 saw unprecedented levels of fiscal stimulus, currently totaling over $10 trillion globally.

So far, the stimulus has widely been considered a success, limiting economic damage and aiding economic recovery. But ever-growing government deficits and debt levels are worth considering. Recently, Fitch downgraded Canada’s credit rating one notch to AA+ from its AAA rating.

The country still retains the highest credit ratings from S&P and Moody’s, and the move is expected to have minimal impact in the short-term.

Central Banks and Interest Rates

Significant stimulus measures are expected to continue in the coming months, as central banks move from stabilizing financial markets to stimulating growth.

The Bank of Canada has forecast a quick initial rebound ahead of a long and uneven second stage of recovery.

The Bank has also confirmed that it intends to keep interest rates low for a long while, as monetary stimulus continues well into the recovery.

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