Canada’s economy has been rebounding at a steady space over the last little while, but economists fear the second coronavirus wave could derail the recovery.
“The impact of the second wave was not seen in economic data released for the week, due to its backward-looking nature,” said Sri Thanabalasingam, senior economist at TD Banking Group. “We are still receiving data points from summer months, but even these are pointing to a slowing recovery.”
The economist notes that while the Canada Emergency Response Benefit program is being replaced with the revamped Employment Insurance, Canadians will have to look for work to remain eligible.
Ontario imposed new restrictions in Toronto, Peel Region and Ottawa to help slow the spread of COVID-19, while Quebec reported more than a 1,000 cases for a third straight day, suggesting the second wave is already here.
“Finding new employment may be no easy task, however. Especially for those with previous experience in ‘high-touch’ industries (i.e. food and accommodation services),” Thanabalasingam wrote in a note on Friday. “Only with the virus under control, can provinces safely reopen the entire economy. Until then, the next phase of the recovery will be slow and choppy.”
The first EI payments went out last week, with just over 84 per cent of applicants receiving benefits, a figure experts noted as positive.
The labour market has recouped about 2.3 million of the three million jobs lost when the pandemic first struck, but a new round of restrictions amid rising COVID-19 case counts threatens some of those gains.
“That will have economic consequences in Canadian data for October and November. The damage to monthly GDP growth will be far from the tumble from February to April, when many more venues were shuttered, and we were starting from a point at which these businesses were running at full tilt,” according to Avery Shenfeld, economist at The Canadian Imperial Bank of Commerce. “Still, that won’t dull the pain for those in the affected sectors, and they must surely be questioning whether this will be a one-month halt or worse. Can we, in fact, unlock those doors before a vaccine is widely in place?”
Europe also appears to be heading for a “double-dip recession” as Germany, France, the U.K., Italy, Spain and the Netherlands roll out more stringent measures, the Financial Times reports.
Oxford Economics notes that its ‘Canada Recovery Tracker’ index was deteriorating too, amid the second wave.
“Sentiment also moved lower as declines in housing, durable goods,and travel and tourism interest more than offset a slight rise in consumer confidence,” Tony Stillo, director Canada Economics at Oxford said in a note last week. “All sub-components of the mobility tracker declined reflecting growing restrictions and financials fell as both equity and commodity prices retreated.”
Other economic data also shows the economy is faltering, with manufacturing sales falling two per cent in August.
“Looking ahead, manufacturing sales are likely to grow at a slower pace, with high unemployment levels worldwide and permanent capacity destruction likely to keep a tap on factory production,” noted Jocelyn Paquet, economist at National Bank of Canada. “Elevated inventory levels will not help either.”
The Bank of Canada’s Business Outlook Survey (BOS) and Survey of Consumer Expectations report for the third quarter to be released this morning at 10.30 a.m. ET, should offer a peek into consumer and business sentiment.
“The BoC’s BOS is expected to rebound from the second largest deterioration on record in Q2,” said Michael Gregory, CFA, deputy chief economist at the Bank of Montreal. “Unsurprisingly, the weakness was broad-based last quarter, leaving the BOS indicator at the third-lowest level on record. While we’re expecting a broad improvement, the various measures of sentiment will likely remain well below pre-pandemic levels.” — With files from The Canadian Press