Canadian GDP to contract by as much as 28% in Q2

Canadian GDP is expected to fall 4.1 per cent this year followed by a rebound of 5.1 per cent in 2021, says Scotiabank Economics report

A report by Scotiabank Economics suggests Canada’s GDP will contract by 28 per cent in the second quarter of this year given the shutdown of non-essential businesses in Quebec and Ontario and a decline of 35 per cent could take place if other provinces follow suit.

“Assuming a return to more normal operating conditions by the end of Q2, Canadian GDP is expected to fall 4.1 per cent this year followed by a rebound of 5.1 per cent in 2021. Canadian GDP could decline by more than six per cent in 2020 if the shutdown were to extend through Q3,” said the report.

“We now assume that economic activity resumes by the start of the third quarter and that growth rebounds sharply at that time. However, the 20 per cent drop in US economic activity in the second quarter will restrain the rebound in Canadian activity in the third quarter owing to the usual lags between US and Canadian economic outcomes.”

The report said a key question for forecasters is the length of the virus-related restrictions on firms and households. A shift of one quarter in the resumption of normal operating conditions can have a large impact on growth outcomes, it said.

“Since we do not have a good handle on the ultimate length of the interruptions, we consider it more informative to assign probabilities to the time at which virus containment measures end. At this time, we believe there is a 75 per cent chance that activity resumes by Q3 and a 25 per cent chance that activity returns to more normal levels by Q4.”

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