CANADA

As a result of these fiscal and monetary measures, the economy has made a surprisingly sharp rebound. After the September employment report, the economy had regained a remarkable 76% of the jobs it had lost in just five months. Put another way, during the shutdowns, the economy lost 15.7% of its jobs, and now it’s just down 3.7%. However, there is a long way to go yet. The biggest job gains came in June followed by consecutively slower gains in July and August, followed by an uptick in September. We expect that job gains in coming months will be even slower for three reasons. First, the early job gains were the “low-hanging” fruit where businesses had been temporarily closed and then opened back up, re-hiring former employees. As most provincial and local governments have already eased many restrictions, and in some cases are now re-imposing restrictions, there are fewer cases of those easy gains to be had. In the meantime, there have been many permanent job losses, and unemployed workers will no longer have a position awaiting them. And finally, re-entrants to the job market will find much tougher conditions with fewer job openings available. It will probably take until 2023 for the labor market to return to some semblance of full employment.

In terms of GDP growth, over the past four recessions it has taken the economy on average nine quarters to fully recover. This wouldn’t put the economy back to previous levels of output and business conditions until the end of 2022. Indeed, using the monthly GDP measure, economic output is still down -5.8% since before the pandemic, or an annualized rate of -13%. However we do expect to see continued GDP growth with a massive +40% or more q/q annualized bounce back in Q3, followed by +6% in Q4.  For 2021 we expect the economy to grow a very strong +5.2%.

However, as a result of the scars left on the economy, business bankruptcies will surely rise. The increase in bankruptcies in 2020 compared to 2019 is likely to be modest at approximately +4%. This is less than might initially have been thought, but there has been a backlog in the courts due to the shutdowns, and businesses have remained flexible to keep each other afloat, providing as much forbearance in lending as possible. However, next year the courts will catch up, and debt forgiveness and forbearance will start to wear thin.  As a result, we expect to see business bankruptcies rise by a very sharp +21% in 2021 vs. 2020.

A long way to go, but with some tailwinds

Not all is lost however. Despite the forecast of a slowing recovery and a large increase in business bankruptcies, there are some strong tailwinds. Two major leading indicators, the Business Barometer from the Canadian Federation of Independent Business and the Ivey Purchasing Managers Index, have both rebounded strongly above 50, indicating economic expansion and forecasting stronger conditions over the next year. The housing market has made a dramatic comeback with unit sales hitting record highs, as people have sought to move out of apartment buildings and cities into their own homes. Retail sales are now higher than they were before the pandemic. New orders for manufactured goods, which are a harbinger of future employment have bounced back sharply. By some measures the economy has “bottomed out”.