Canada’s Economic Outlook for 2021

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Like most other developed nations, Canada’s economy is expected to grow and return to pre-pandemic levels for the most part, thus lifting the country out of the mess caused by the COVID-19 crisis. It’s worth noting that 2020 saw the biggest economic dip since 1945, estimated at around 5.5% of the country’s GDP.

A strong rebound in exports and increased consumption will provide the economy with the boost it needs. Launching new government projects can also help restore the Canadian economy back on track.

However, the housing market slowdown and the decision of several major companies to postpone their business investments might limit the recovery process to some extent as well.

Economic recovery will depend on how the pandemic progresses

It’s clear that everything depends on how the pandemic is going to progress. This single factor is what will determine everything.

Recent developments show encouraging signs though. Researchers have estimated that an effective vaccine could be deployed throughout Canada by May 2021, helping the economy expand by 4.5% at the very least. If it takes any longer than that, gains would be restricted to 4%. However, a complete recovery back to pre-2020 levels would take at least 2 more years.

Apart from the virus, there’s a lot of uncertainty in the global markets as well with several countries adopting protectionism. This could pose challenges for export-oriented economies like Canada. The Bank of Canada has confirmed that its monetary stimulus programs would remain active till 2023.

Exports and Consumer Spending Will Drive Canada’s growth

Relief programs launched by the government have helped the labor market recover faster in Canada compared to the US. More than 80% of the jobs that were lost back during March-May have come back, thus improving employment figures.

In the US, the housing market and consumption levels managed to bounce back after lockdown restrictions were lifted over the spring. While goods and energy export levels have recovered well, service exports continue to remain depressed.

In 2021, Canada is expected to witness a favorable export environment with consumption being driven by household support government programs and a strong labor market.

Business Investments to Drag Down the Speed of Recovery

Entrepreneurs agree that their businesses are having to cancel or postpone their investments indefinitely to help with their cash flow situation.

Certain service sectors that depend on tourism revenues, like the food and accommodation sectors, are expected to have another bad year. Government health guidelines might limit their activity levels during Q1 2021 before they are eased during the spring. Their recovery will depend on the deployment of a COVID-19 vaccine.

The housing and real estate sector might face stagnation in 2021 as well. With immigration programs slowing down for now and mortgage lending standards being tightened, demand in urban centers and other locations is likely to be slow.

Ontario Might Lead the Recovery with The Best Growth Rates in 2021

The bounce-back will be stronger in provinces, which experienced a greater dip due to the COVID-19 pandemic.

Ontario had implemented the strictest lockdown restrictions in Canada due to which it had taken a severe hit. However, it will lead the country in economic recovery in 2021. The automotive sector is expected to aid the recovery of Ontario’s manufacturing sector as well. Ontario is expected to grow by at least 4.5% in 2021.

Quebec and British Columbia might record high growth levels as well, somewhere in the vicinity of 4%. The aerospace sector slowdown in Quebec and the housing market slowdown in British Columbia were the biggest challenges these two provinces faced in 2020.

Saskatchewan was somewhat less affected by the pandemic and is expected to grow by 4% in 2021. Manitoba had recorded the highest growth in 2020 and is, therefore, expected to post growth rates slightly above 3.5%. Alberta took a massive hit in 2020 due to lockdown restrictions and the ensuing impact on oil prices. Even if the pandemic is successfully brought under control, low interest in investments in the oil industry may bog down its growth rate.

Tech Is King

2020 saw e-commerce, telemedicine, e-learning, and remote work see a massive surge in adoption. The tech industry only declined by 3% between Feb-Apr 2020, compared to the 18% decline registered by the overall economy.

Over 40% of SMEs in Canada are increasing their tech investments next year, which will benefit this sector more. It’s expected to witness a growth of 1.1% this year, followed by at least 2.2% in the next.

The crisis has affected other sectors like a general recession. While production levels declined during this year, they will be back to pre-pandemic levels in 2 years or less.

Food, accommodation and the tourism sectors may take more time to recover. The pandemic may need to be eradicated completely before growth in these sectors picks up again.

Depressing Outlook for the Canadian Oil Industry

With oil demand dropping to historic lows, many oil producers have had to slash their production, which has depressed activity levels in the industry.

Travel restrictions and increased remote work opportunities may depress oil consumption levels until an effective vaccine has been distributed to the public. While demand will recover, it’ll take at least another year before returning to pre-pandemic levels.

The IEA stated that oil prices are estimated to recover enough soon to go to 2019 levels, which is a jump of 20% from the lows seen earlier this year. However, even this news may not be sufficient for companies to increase new investments for now.

Ultimately, it all depends on how the pandemic evolves

If a potent vaccine is successfully created and deployed effectively by the summer of 2021, economic growth levels could reach 4.5%, thus allowing the economy to recover fully by 2022.

But if the vaccine takes till late 2021 to be distributed effectively, growth will fall to 4% with full recovery taking till 2023.

Continuing the low-interest rates, managing the loonie, and ensuring a stable geopolitical environment will help Canadian entrepreneurs minimize their losses.