Global gross domestic product is now expected to remain flat this year and fall by 4.1% in Canada due to quarantine or shut-down activities aimed at slowing down the COVID-19 outbreak, according to Scotiabank's chief economist.
In the latest forecast — which is being updated more frequently due to fast moving developments as governments take action against the novel coronavirus — Jean-François Perrault writes in a report released March 25 that the additional measures taken by various governments prompted a revision of both global and domestic economic expectations.
"We now anticipate global GDP growth to be 0% in 2020, followed by a sizeable rebound in activity in 2021 given our view that economic activity will rebound quickly once the virus is no longer a serious threat to public health," he wrote.
Scotiabank Economics' previous forecast pegged global GDP growth at an average of 1.3% in 2020.
Canada's GDP is now expected to contract by 28% in the second quarter given the shutdown of non-essential businesses in Quebec and Ontario, or by as much as 35% if other provinces take similar action, said Perrault.
Overall, Canadian GDP is expected to decline by 4.1% but could decline by more than 6% in 2020 if the shutdown were to extend through the third quarter, he added.
Scotiabank Economics' previous forecast was a 2.2% drop in Canadian growth.
Perrault said he assumes that economic activity will resume by the start of the third quarter and growth will rebound sharply then, however the 20% decline in US economic activity will restrain the rebound in Canadian activity.
"There is a chance that aggressive virus management measures are required beyond Q2 to ensure the virus is truly well-contained. Evidence in Asia this week suggests that even in countries where aggressive management measures have been put in place, COVID-19 can come back quite quickly."
If that is the case, then Canadian GDP would fall by 6.3% in 2020 rather than 4.1%, he added.
"At this time, we believe there is a 75% chance that activity resumes by Q3 and a 25% chance that activity returns to more normal levels by Q4. How officials manage virus containment internationally, as well as the evolution of the virus, will inform our assessment of probabilities going forward."
Read Scotiabank Economics’ full report here.
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