Canada won’t return to pre-pandemic employment for another four years, conference board warns

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The lingering pandemic will flatten and potentially stall Canada’s economic recovery into 2021 with non-energy investment particularly hit, says a new report by the Conference Board of Canada.

Annualized non-energy, non-residential business investment will drop to about $130 billion early next year from almost $150 billion now, the Ottawa-based research organization forecasts.

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Canada won’t return to pre-pandemic employment for another four years, conference board warns Back to video

“With the Canadian economy suffering through its sharpest recession in living memory, firms are likely to delay any major investment decisions until there is more clarity surrounding the pandemic,” the board said.

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“Even after the economy emerges from the crisis, the negative effects of the pandemic will linger. Because capacity utilization rates have dipped and demand will take time to fully recover, many firms will have little incentive to invest in additional capacity until well after other sectors of the economy have recovered,” it said.

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While the board’s forecast of a 6.6 per cent decline in 2020 gross domestic product is better than its earlier prediction of an 8.2 per cent drop and the board says a recovery is underway helped by government aid programs, the outlook is dire for some industries. Closures and declines in household spending will restrain the recovery’s pace into mid-2021, board chief economist Pedro Antunes said. Pre-pandemic unemployment levels won’t return until 2025, he said.

“Air transportation is nearly shut down,” Antunes said in the report. “Accommodation, food and beverage services, textiles manufacturing, printing, motion picture, and sound recording are other examples of industries that remain hard hit and face a tumultuous business environment for the foreseeable future.”

Household spending will fall by 9.1 per cent this year before expanding by 4.8 per cent in 2021 and 7.4 per cent in 2022, the board forecasts.

“In addition to government support for families, pent-up consumer demand helped to fuel the strong rebound in consumer spending, especially in the goods sector,” the economist said.

The board expects a full recovery in goods consumption by the end of next year, but says it will take a further six months for services such as tourism and travel.

Canadian housing will continue to accelerate in most markets with increased construction and resales before a pullback early next year, the board said.

“Slowing momentum and weaker government support will trim resale prices in early 2021, but a second half recovery should produce a 6 per cent overall price increase,” Antunes said.

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Canada’s GDP grew 3 per cent in July, at a slower pace than June’s 6.5 per cent gain, Statistics Canada reported Wednesday.

“The pace of growth in the economy is clearly slowing,” Nathan Janzen, senior economist at Royal Bank of Canada said in a note. “A lot of the early recovery has come from re-opening from spring containment measures. And with most COVID-19 containment measures already eased, that boost won’t be repeated going forward. The latest bout of virus spread in Canada has just reinforced that there are probably limits to how much the economy can recover as long as that threat remains.”

The industrial sector was down just 6 per cent in July compared with pre-COVID levels while accommodation and food services remained down a third and arts, entertainment and recreation operated at less than half of last year’s levels, the bank said. Oil and gas investment remains soft, it added.