The Canadian economy was sluggish before it was hammered by the coronavirus pandemic. While the Canadian economy was expected to rebound quickly after the country went into lockdown this past spring, the second wave has burst that bubble. It now looks as though the country’s economic rebound will take a lot longer than expected.
When Will the Canadian Economy Recover?
The Bank of Canada said recently that it expects interest rates to remain at record lows until 2023 as the second wave of the coronavirus pandemic will have a much more profound effect on Canada’s near-term growth.
Keeping interest rates low until 2023 means cash strapped, debt laden businesses and consumers can borrow for the medium term without fears that interest rates will unexpectedly soar. That’s good news for consumers who want to buy an appliance but not great for those looking to buy a home or businesses looking to invest long-term.
The Bank of Canada has a plan for long-term rates though. While the central bank kept its overnight lending rate at 0.25% it also changed its asset purchase program towards longer-term bonds that mature in three or more years.
Why does that matter?
Central banks, including the Bank of Canada, focused on short-term bonds in the spring, thereby increasing the amount of cheap money in circulation. Now that the markets are working more normally, the central bank is reducing its monthly bond-buying program from $5 billion to $4 billion and buying bonds that don’t mature for 30 years. This makes longer-term loans cheaper, which is good for mortgages and business investments.
Are Canadians Optimistic about the Country’s Economic Outlook?
Despite these steps by the Bank of Canada, consumers are not exactly reassured about their economic prospects. First off, the Bank of Canada said it expects the Canadian economy to contract 5.7% in 2020. On the bright side, it expects the Canadian economy to grow 4.2% in 2021.
But those rosy projections are based on successive waves of the coronavirus being less damaging than the previous one, which is imperative since a vaccine is not expected to be widely available until 2022.
This isn’t happening right now though. The second wave of COVID-19 is seeing infection numbers greater than the first wave and major economies around the world, including France and Germany, imposing new lockdown restrictions. Canada’s two largest provincial economies, Ontario and Quebec, have also implemented new lockdown measures.
Not surprisingly, this is having a negative impact on consumer confidence. In fact, the number of Canadian who are optimistic about Canada’s economic outlook is plunging. Just 12.9% of Canadians say the country’s economy will get stronger over the next six months; that’s the smallest number since early May. On the flip side, the number of people who believe the Canadian economy will get weaker over the next six months increased to 56%. Pessimists now outnumber optimists by four to one.
There’s good reason for that pessimism. The Canadians hit hardest during the coronavirus pandemic have been the lowest wage earnings. A whopping 425,000 jobs were lost during the 2008 Financial Crisis, but the coronavirus pandemic has wiped out 700,000 jobs. The Bank of Canada admitted many of those jobs may never come back.
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