An already slowing global economy is seeing more downward revisions to forecasts, due to the pandemic. The International Monetary Fund (IMF) is the latest organization to lower Canada’s 2020 GDP forecast. The organization sees the economy making the biggest contraction seen in generations. On the upside, they see a return to growth next year. Next year’s optimistic growth would still have Canada far from a v-shaped recovery.
Canadian Economy To Contract Over 6% This Year
The Canadian economy is expected to make a large contraction this year. According to the IMF’s latest forecast, Canada’s real GDP will contract 6.2% in 2020. This is down 8 points from the 1.8% growth forecasted as recently as January. The decline is a little larger than the 6.1% average drop forecasted for all advanced economies. For context, this decline is twice the size Canada saw during the Great Recession. It’s even almost twice as big as the decline seen during the 1980s recession as well. Ask your parents what that was like.
Real Gross Domestic Product Forecast
The annual change in gross domestic product, and the IMF forecasted change.
Source: IMF, Better Dwelling.
Growth Is Expected To Return Next Year, But Lagging Peers
A sharp decline is often accompanied by a rebound, and that’s what the IMF is forecasting as well. In 2021, the organization forecasts Canada’s real GDP will grow 4% from a year before. This is an increase of 1.8 points from their previous forecast. Growth is 13.79% lower than the average forecasted for all advanced economies. Canada will do a little underperforming on the other side.
Even With The Bounce, Canada’s Economy Will Lose Years
Don’t get too excited about the growth – years of productivity will still be lost. By the end of this year, the IMF forecast places Canadian GDP where it was in 2017. After next year’s optimistic bounce, the GDP will be around where it was in 2018. That’s almost half a decade wiped out, assuming the pandemic’s impact is contained to this year.
GDP falling back a few years doesn’t sound like it’s all that bad – does it? It does when you factor how quickly Canada’s population has been growing. If GDP rolls back to 2017 levels, we still have the post-boom population growth to deal with. The economic output would be spread over many more people. Put blatantly, it wouldn’t feel nearly the same as it did then.
The issue is further complicated by population driven economic growth. Just a few months before the pandemic, Canada’s GDP growth had been contracting on a per capita basis. In order to get Canada back to normal, the IMF’s forecast likely depends on Canada resuming GDP growth solely by immigration. This is optimistic, since immigration tends to slow, or even halt, during a global economic downturn. We’ll unpack the immigration analysis a little later this month.
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