Ever since the first presumptive case of Coronavirus was found in Canada, there was a murmur in the media about a potential recession and heavy economic downturn if the spread of the virus was not controlled. Here we are now, with almost six hundred cases across Canada and a provincial state of emergency declared in every major industrial province, things are looking grim for the economy as we move into the third and fourth quarter of the year.
Oil prices have plummeted and continue to do so. Economists say that a recession is coming and amidst the uncertainty of the virus, the Canadian economy must brace itself for some hard times.
Royal Bank of Canada predicts that the economy will grow at an annualized rate of 0.8 per cent during the first quarter and then contract by 2.5 per cent in the second and 0.8 per cent in the third quarter. Two consecutive quarters of decline is considered a recession. They also said that the key to the recovery would be the measures taken by the government in the form of policy response.
Bank of Canada cut its key insurance rate by half a percentage point in addition to its initial cut of another half a percentage point bringing the rate down 0.75 per cent. Governor of Bank of Canada Stephen Poloz remarked that the spread of the virus would have serious consequences on Canadian families and the economy as a whole.
“In addition, lower prices for oil, even since our last scheduled rate decision on March 4, will weigh heavily on the economy, particularly in energy-intensive regions,” Poloz said. “Combined with the other measures announced today, lower interest rates will help to support confidence in businesses and households. For example, borrowing costs will be lowered both for new purchases and through variable-rate mortgages and mortgage renewals.”
CIBC’s report presented even more dire numbers as they predicted the decline in the second quarter to be 3.0 per cent and 3.4 per cent in the third quarter before resuming growth in the final quarter of the year.
The Juno Awards have been canceled along with the suspension of most professional sports leagues in North America. Businesses are doing their part to curb the spread of this virus by urging the employees to work from home when possible and to travel sparingly. The assumption in the reports mentioned above is that the crisis will be controlled by the end of the first half of this year and the road to recovery will begin. All of this still remains based on assumptions and the situation may worsen if the virus continues to spread at the current rate. The latest estimates show a total of 614 cases across Canada and 9 deaths with cases have doubled over the last weekend.