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What you need to know about COVID-19: August 6, 2020
The worst days of the effects of COVID-19 on the Canadian economy are behind us, says the Conference Board of Canada (CBOC) in its Canadian Outlook Summary , Summer 2020, a forecast for the balance of 2020 and into 2021.
But, we’ll not see the best days for a while yet.
“The good news is we have seen a gradual but continued easing of restrictions in Canada since April. This means the economy likely began rebounding in May, making the pandemic-induced recession one of the shortest, albeit the steepest, in modern history,” says the report. “One of the first snapshots of activity for the month, the employment report, showed that nearly 300,000 jobs were created in May. Momentum is expected to continue to build as more restrictions are eased. But in this highly uncertain operating environment, a lot has to go right. Our outlook depends crucially on a number of key assumptions that will shape our recovery.”
Since Alberta started re-opening and Albertans have enjoyed what feels like new-found freedom, it’s easy to forget what got us to this stage. The CBOC reminds us why restaurants and such have re-opened and why we must adhere to the things that will allow the recovery to continue.
Key assumptions that underpin the CBOC forecast include:
- Social distancing protocols are relaxed only gradually until COVID-19 is no longer a domestic public health threat. Additionally, there is no second economy-wide shut down. Regional or local shutdowns are still possible; but, nationally, restrictions are steadily relaxed.
- The need to continue to practice social distancing will keep many parts of the economy operating below potential until a vaccine is available.
There are others, but continuing to social distance and taking other precautions in your everyday activities are vital.
The report includes a forecast for the Canadian housing market, which I’ll get to, but first, a second report from CBOC, released this past week, says Canadian consumer confidence is on the rise.
“Consumer confidence improved across all regions (in June),” says the report’s author, Anna Feng. “In Alberta, sentiment around future labour and economic conditions strengthened. The province posted the third-largest increase in consumer confidence (18.7 percent). The recent oil production cut by OPEC and its allies has significantly boosted oil prices. This has sparked some optimism about Alberta’s oil sector after the price war between Saudi Arabia and Russia gutted oil prices in March. As a result, Albertans are more optimistic about future employment than they have been in over a year (17.2 percent), and their pessimism about making major purchases (such as homes) has declined to pre-COVID-19 levels.”
Now to housing, which like all else, has been hard hit.
“Still, by the end of 2020, the resumption in job growth and low interest rates will form the foundation for recovery, after which ongoing population growth should provide a decent underpinning for the medium term,” says CBOC. “The pandemic has sharply curtailed sales and listing activity in resale markets. Housing starts have held up better, mainly because construction has been declared an essential service by many provinces (the report for June starts will include Quebec, so there will be a big increase percent wise). Policymakers and financial institutions have responded to the pandemic-related economic crisis with supportive monetary and regulatory measures.”
As the report notes, rock-bottom interest rates have slashed the cost of financing a house purchase, while the Office of the Superintendent of Financial Institutions and the Canada Mortgage and Housing Corporation (CMHC) have both taken initiatives to boost lenders’ liquidity. Many financial institutions have provided the option to defer mortgage payments.
“Importantly, the assumption that the federal wage subsidy will be extended until a vaccine is found should allow the labour market to recover much quicker than in a typical recession. This could protect at least some existing homeowners from defaulting on their mortgages and avoid the resulting home repossessions.”
The risks to its outlook are, unfortunately, all on the downside, says the report.
“If there is a big second wave of the pandemic, resale markets could freeze again. Another worry is travel restrictions will depress tourism and thus demand for short-term rental units, which could prompt their owners to sell them, boosting supply in a potentially soft market.
“Residential demand could also be impaired by the tighter mortgage-lending rules that the CMHC recently announced. The high levels of consumer debt that were already a problem before COVID-19 emerged remain a background threat.”
CBOC expects housing starts have dropped 45 percent, annualized, in the second quarter (CMHC issues second-quarter results on July 9), but begin to rebound in the third quarter and post further increases in the fourth.
“Still, starts will end 2020 near 191,400 units, down a relatively mild (given the circumstances) 8.3 percent from 2019, but still the fewest since 2014. This will be the cyclical low. In the 2009 recession, by comparison, starts troughed near 149,000 units. We expect a higher cyclical bottom this time, due to pent-up residential demand, ultra-low interest rates and the staunch income support from the federal government.
“The outlook for 2021 is brighter. The economy is forecast to rebound by 6.7 percent in 2021 and 4.8 percent in 2022. As the threat of the pandemic eases, how well the reopening of the economy and the withdrawal of government support is managed will be a crucial determinant of the economy’s trajectory over the next several years.”
Copyright Postmedia Network Inc., 2020