The wide-ranging impacts of the COVID-19 pandemic are “too formidable” to be fully offset by government and central bank policy actions and a recession appears inevitable in many countries including Canada and the US, according to Scotiabank’s Chief Economist.
“Despite remarkably timely and aggressive responses by global central banks and some fiscal authorities, recessions appear unavoidable in a number of countries, including Canada and the US, owing to the combined impact of lock-downs, sector shutdowns, the impact of lower prices in some countries, rising economic uncertainty and the impact of the sharp correction in stock markets,” Jean-François Perrault wrote in an updated economic forecast released March 20.
Perrault writes that global growth will now average 1.3% in 2020, the lowest level since the decline in GDP recorded in 2009 during the financial crisis.
Policymakers’ efforts are now largely aimed at helping businesses, households and consumers through the unprecedented challenges rather than insulate them from the damage, he wrote.
In Canada, virus-related curtailment of activities will likely extend to the end of the third quarter, Scotiabank Economics forecasts.
“While this may be a pessimistic assumption, it seems clear that virus-related disruptions will increase through time,” writes Perrault. “Moreover, in the absence of a vaccine against the virus, we assume policymakers will play it safe and maintain aggressive containment efforts until there is compelling evidence that the virus has largely run its course.”
The severity of the recession in each country will depend on how effective current and future measures to contain the virus are, and how aggressive and targeted the economic policy response is, he adds.
Canadian growth is expected to fall by 2.2% while Eurozone output is forecast to decline nearly 3%, but it is difficult to have a high degree of confidence in point estimates of growth due to the unprecedented nature of this public health crisis, Perrault wrote.
Once the COVID-19 outbreak is contained, Scotiabank Economics expects there will be a sharp rebound as activity ramps back up and pent-up demand is unleashed, sometime during the third or fourth quarter of 2020.
“That is too late to save us from bad outcomes this year, but it should lead to a strong start to 2021,” said Perrault. “Of course, this depends on proper management of the pandemic from a public health perspective. This is unfortunately not assured, particularly in the US, where efforts to date appear to significantly lag those in other countries.”
Read Scotiabank Economics’ full report.
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