Year in Review – Part 3: The Economy
The Canadian economy, like other economies in the world, has been impacted by the COVID-19 pandemic in different ways.
In this blog, we take a closer look at the impact of policies and measures put into place as well as the effects of the pandemic on different facets of the economy.
The Canadian Government was quick to announce support for Canadian businesses and residents during the pandemic. A number of benefits such as the Canada Emergency Response Benefit (CERB) and Canada Emergency Wage Subsidy (CEWS) were rolled out quickly.
Primarily due to COVID-19 related measures that were put into place, earlier this year, the federal government’s latest projections show the national deficit is projected to hit a new high of about $381.6 billion this fiscal year.
According to Global News, relative to the size of the economy, the deficit amounts to 15% of the GDP, making it the largest in over 50+ years of comparable data.
Negative Impact on Small- and Medium-Sized Businesses
Widespread closures and evolving restrictions impacted many small businesses across Canada. According to Statistics Canada, in terms of real output, small firms were hardest hit in Q1 2020, followed by large and medium-sized firms.
This is the same for the number of hours worked. Estimates highlight that the hours worked for small firms declined by 9.4% in Q1 2020. While comparatively, the hours worked for large firms actually increased by 1.2% in Q1 2020.
Unprecedentedly Low-Interest Rates
This was probably one of the most significant changes in 2020. Earlier this year, the Bank of Canada confirmed that it would revise its target for the overnight rate to an effective lower bound of 0.25%.
The interest rate is not expected to go back up any time soon. The Bank confirmed that it aims to keep the policy interest rate at the effective lower bound until the economic slack is absorbed and the 2% inflation target is sustainably achieved.
Real Estate Market Stayed Resilient
One sector that has proven to be resilient is real estate. While the real estate segment did witness the impact of COVID-19 in the early summer months, the signs of recovery began to appear quickly.
So, in essence, the pull-back in March and April was temporary and those delayed transactions took place in later months. This is reflected in the near-term bounce in June. This was an interesting trend in 2020.
Additionally, monthly registered residential sales value has steadily increased from $7.83 billion in February 2020 to $17.34 billion in August 2020.
Employment Picked Up
As expected temporary lay-offs and job losses happened in the beginning of the pandemic across different provinces. Employment fell more in industries that were directly impacted by public health restrictions such as hospitality, accommodation, retail, and food services. This led to a surge in the unemployment rates.
According to Statistics Canada, the labour underutilization rate rose from 11.2% in February to 36.1% in April. The positive news is that this rate is now steadily dropping and has reached 16.9% in November 2020.
While 2020 was a challenging year, economic indicators are beginning to show improvements and with vaccination rollout plans being drafted and implemented, the path to economic recovery will become much clearer in 2021 Q1.
This is the third part of our year in review series. For in-depth sector-related insights, access our analysis of the financial and real estate industries.