Canada is now facing a technical recession, says TD Economics. The success of Covid-19 containment measures will determine whether the economy suffers a more severe blow.
In a new report, TD slashed its 2020 GDP forecast from 1.6% growth this year to just 0.2%, which would represent the slowest pace of growth for the Canadian economy since 2015.
Growth was already weak at the end of 2019, and the economy was facing challenges from unusual weather, rail blockades and other disruptions before the pandemic hit, the TD report said.
“Now, with Covid-19 on the landscape, a disappointing start to the year will give way to back-to-back quarterly contractions,” the report said.
“To make matters worse, now there’s Saudi Arabia’s scorched-earth approach of flooding the market with oil supply when demand is already quite weak,” the report added. “Plummeting prices generate a significant income shock on Canada that is particularly impactful in the second quarter.”
TD now projects that growth will be disrupted throughout the first half of the year, leading to its downgraded forecast for the full year.
Yet, even this gloomier forecast assumes that the worst will be over by mid-year, and there’s little certainty of that.
“Only time will tell if virus-containment measures bleed into the third quarter to take a technical recession into a formal one,” TD said.
TD also forecasts that global GDP growth will come in at just 1.7% for 2020, down from its previous forecast of 3.0%.
However, it also expects a weak 2020 will set up for a stronger 2021.
TD now forecasts world GDP growth of 4.0% next year, up 0.6% from its previous forecast.
Similarly, Canada is now seen generating 2.1% growth next year, up from the prior forecast of 1.8%.
“However, this forecast is subject to a particularly high level of uncertainty given the nature of events and unprecedented mitigation action being taken by governments and businesses,” the TD report said.