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The economic recovery was already at risk of stalling before a second wave of Covid-19 infections brought new lockdowns, according to a new report from BMO Capital Markets.

The bank reported that its Canadian Business Activity Index — which represents a compilation of monthly economic indicators, augmented with high-frequency data on retail mobility and credit card transactions — rose by just 0.1% in October.

This modest advance followed a 0.8% increase in September, and BMO said that it marked the “first material slowing in six months” after several months of strong gains.

With those repeated monthly increases, the index had recovered the losses recorded in the first wave of the pandemic and was 2.3% higher than in February.

However, in October, “nearly every component (apart from wholesale trade) lost steam,” BMO said, “with even the red-hot housing market (both sales and starts) cooling a degree or two.”

On the heels of this weakening, the economy is now facing greater headwinds as a resurgence of infections prompted a return to lockdowns in areas such as Toronto/Peel and Manitoba.

These renewed restrictions “risk sending the economy into reverse in the final two months of the year,” BMO said.

The report noted that this risk was also foreshadowed by a plunge in small business confidence in November after six consecutive monthly gains.

“Depending on how further restrictions unfold in coming weeks, the recovery is at risk of stalling in Q4, before reviving early next year,” BMO said.

If these restrictions are relaxed, then economic growth should resume in the first quarter of 2021, it said.

“Moreover, if an effective/safe vaccine can be widely distributed by the spring, activity should accelerate on pent-up demand for many services, notably travel,” BMO added.