The Canadian government isn’t exactly planning for a v-shaped employment recovery. The Parliamentary Budget Officer (PBO), who gives non-partisan financial forecasts to parliament, updated their forecasts. While the focus of the forecast is how the federal government’s finances will look, there’s some interesting assumptions that are important from a macro perspective. The government is planning for unemployment to rise into Q3, and end the year with over 3 million unemployed Canadians.
Forecasts are what people focus on, but within forecasts are assumptions. These assumptions are typically based on research and forecasting models as well, but they just aren’t the focus. In some periods of high volatility, it’s worth looking at the assumptions as well. Sometimes those assumptions help us understand what the government is thinking, without them saying it.
Today we’re going to look at the unemployment assumption they’re using in the forecast. In this scenario, the government sees social distancing and self-isolation easing in August. If it happens before that, it will have a positive bias. If it happens afterwards, it will have a negative bias. It will change higher or lower after the next few weeks, but this helps you understand the conservative level of risk the government sees.
Canada Expects Over 3 Million Unemployed People By Year End
Unemployment will peak in Q3, before finishing the year in double digits. The first quarter is expected to come in at 7.2%, after March’s initial shock bumped it higher. They’re planning for a bigger jump to 14.8% in Q2, a little over 3 points higher than we were in the last estimate. By Q3, they’re using a forecast of 15%, before tapering down to 12.7% in Q4. Overall, they expect unemployment for the year to round out at 12.4%.
Canadian Unemployment Rate Forecast
Canadian parliament’s unemployment rate forecast.
Source: PBO, Better Dwelling.
Rates are a little abstract for the average person, but those are huge numbers. Canada had 1.155 million unemployed people in Q4 2019. The forecast implies an increase to 3.067 million people by the end of Q4 2020. Rising levels of unemployment were already occurring, but this is a rapid acceleration.
The stimulus and emergency income measures act as a backstop in this case. Measures will help to prevent people from experiencing *catastrophic* downward pressure. However, the anticipated rise in unemployment is so large, don’t expect much economic growth in the near term.
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