FILE - A Royal Bank of Canada sign is shown in the financial district in Toronto. (THE CANADIAN PRESS)

Economists predict recession coming due to COVID-19 and plunge in oil prices

Two consecutive quarters of negative growth is considered a recession

A recession is coming later this year as the economy is derailed by the impact of COVID-19 and a plunge in oil prices, economists said Friday.

Royal Bank of Canada forecasts the economy will grow at an annualized pace of 0.8 per cent in the first quarter, then contract in the second and third quarters of the year.

RBC is forecasting an annualized decline of 2.5 per cent in the second quarter and 0.8 per cent in the third quarter. Two consecutive quarters of negative growth is considered a recession.

ALSO READ: Trudeau promises $1 billion for COVID-19 research, resilience

“Key to the near term outlook and the pace of the recovery will be the policy response by governments,” RBC said in its report.

“The federal government’s plan to provide support measures to mitigate the impact of the virus included upping health care transfers, and increasing unemployment insurance, though both program increases were relatively limited.”

The prediction came as the Bank of Canada cut its key interest rate by half a percentage point to 0.75 per cent on Friday in addition to its half a percentage point cut last week.

ALSO READ: Bank of Canada cuts rate target to 0.75% in response to COVID-19

In making the unscheduled rate announcement, governor Stephen Poloz said it was clear that the spread of the novel coronavirus was having serious consequences on Canadian families and the economy.

“In addition, lower prices for oil, even since our last scheduled rate decision on March 4, will weigh heavily on the economy, particularly in energy intensive regions,” Poloz said.

“Combined with the other measures announced today, lower interest rates will help to support confidence in businesses and households. For example, borrowing costs will be lowered both for new purchases and through variable rate mortgages and mortgage renewals.”

CIBC echoed the RBC comments in its own report that Canada is also likely on the brink of a recession.

“We expect to see output dropping in both the second and third quarters in the US and Canada,” CIBC said in its report.

ALSO READ: COVID-19 closes sites around the world as stocks, oil prices sink

CIBC forecasts the economy will contract at an annual rate of 3.0 per cent in the second quarter and 3.4 per cent in the third quarter, before bouncing back and returning to growth in the final three months of the year.

The bank says fiscal and monetary stimulus will cushion the downside.

“But Canadians won’t really be out shopping again, and business confidence won’t roar back, until we have the virus under control, a better treatment, or a vaccine,” CIBC said.

“So, our assumption that growth resumes in the fourth quarter is therefore just that, an assumption about progress on some of those fronts here and in export markets abroad.”

The new forecasts came as governments advise against international travel and Ontario plans to close its schools for two weeks in addition to the week-long spring break holiday because of COVID-19.

Businesses have also moved to do their part in slowing the spread of the virus by urging employees to work from home where possible and limit travel.

ALSO READ: Canada’s top doctor warns against travelling on cruise ships over COVID-19

The Juno Awards scheduled for the weekend in Saskatoon have been cancelled, while the National Hockey League and National Basketball Association have suspended their seasons. Major League Baseball has ended spring training in Florida and pushed back the start of the season.

The RBC forecast is based on an assumption that the impact of the virus will run its course by the end of the first half of the year, but an economic recovery will be prevented by persistent low oil prices.

The price of oil tanked this week as Saudi Arabia launched a price war with Russia which rejected production cuts that the kingdom had wanted.

In response, the Saudis moved to ramp up production in a bid to make it more painful for other oil-producing countries to continue without production cuts.

The Bank of Canada moved Thursday with an expansion of its bond buy-back program and term repo operations to proactively support interbank funding.

ALSO READ: North American stock markets surge higher in early trading after crash on Monday

The central bank has said it remains committed to providing liquidity as required to support the functioning of the Canadian financial system.

In cutting rates last week, Poloz said the central bank wanted to cut rates “in a decisive manner” to provide a cushion for Canada’s economy against the effects of COVID-19.

He said the immediate effects the virus will have on business investment and consumer spending meant the downside risks to the economy today outweighed continuing concerns that cutting rates would fan financial vulnerabilities in Canada, such as high household debt.

The Canadian Press

Like us on Facebook and follow us on Twitter

Coronaviruseconomy

Get local stories you won't find anywhere else right to your inbox.
Sign up here

Just Posted

The Downtown Vernon Association is requesting free parking on Saturdays in 2021 to boost recovery efforts of businesses amid the COVID-19 pandemic. (Caitlin Clow - Vernon Morning Star)
Free Saturday parking in Vernon must wait for budget talks

Downtown Vernon Association request to boost shopping local amid pandemic

RCMP. (Phil McLachlan - Black Press Media)
Crime up 31 per cent in Vernon in 2019: Statistics Canada

Increase includes a 45 per cent rise in violent Criminal Code violations

City of Vernon councillors vote in favour of extending opportunities to activate outdoor spaces and patios until Oct. 31, 2021, in its Oct. 26, 2020, meeting of council. (City of Vernon - Contributed)
Vernon patio season extended amid COVID-19

City extends temporary measures to boost local businesses downtown

Four staff members at the Okanagan Men’s Centre have tested positive for COVID-19 since Oct. 23, 2020. (Adult and Teen Challenge OMC photo)
Four positive COVID-19 cases at Okanagan Men’s Centre

Those affected are staff and have been in isolation since Oct. 23

Three Okanagan College Mechanical Engineering students manufactured 3D printed Trick-or-Treat Bowls to aid in a physically-distanced Halloween experience amid COVID-19. (3D Okanagan Facebook)
Trick-or-treating made safer thanks to Okanagan College students’ project

3D-printed Trick-or-Treat Bowls available for sale ahead of Halloween

A woman wears a face mask and plastic gloves while browsing books as a sticker on the floor indicates a one-way direction of travel between shelves of books at the Vancouver Public Library’s central branch, after it and four other branches reopened with limited services, in Vancouver, on Tuesday, July 14, 2020. (THE CANADIAN PRESS/Darryl Dyck)
B.C. reports 234 new COVID cases, 1 death of senior who had attended small birthday party

Roughly 5,700 people are isolating due to being exposed to a confirmed case

Join Black Press Media and Do Some Good

Pay it Forward program supports local businesses in their community giving

Superintendent of the Kelowna RCMP, Kara Triance. (Capital News file)
Non-violent crime, small population contributes to Kelowna’s crime rate spike, says RCMP

Kelowna RCMP is assuring the public the city is a safe place

A Tuesday Oct. 27, 2020 apartment fire in Penticton killed two and displaced dozens more. (Brennan Phillips - Western News)
Fatal Penticton apartment fire deemed accidental

The blaze gutted an apartment building on Tuesday morning, killing two people and displacing dozens

A nurse performs a test on a patient at a drive-in COVID-19 clinic in Montreal, on Wednesday, October 21, 2020. THE CANADIAN PRESS/Paul Chiasson
Interior Health reports seven more COVID-19 cases

Eighty-nine cases remain active, none of whom are currently hospitalized

Burnaby RCMP responded to a dine-and-dash suspect who fell through a ceiling in March 2020. (RCMP handout)
VIDEO: Suspected dine-and-dasher falls through ceiling of Burnaby restaurant

A woman believed to be dashing on her restaurant bill fell through the kitchen ceiling

This Photoshopped version of the crosswalks near the entrance to the Salmon Arm Arts Centre on Hudson Avenue show what is proposed to help create safety for and show inclusivity to the LGBTQ2S+ community. (Salmon Arm Arts Centre image)
Tri-rainbow crosswalk and Progress flag requested to help make Salmon Arm safe

Council will consider budget requests to help make city inclusive to LBGTQ2S+ community

A can of Canada Dry Ginger Ale is shown in Toronto on Thursday Oct. 29, 2020. The maker of Canada Dry Ginger Ale has agreed to pay over $200,000 to settle a class-action lawsuit launched by a B.C. man who alleged he was misled by marketing suggesting the soda had medicinal benefits. THE CANADIAN PRESS/Joseph O’Connal
B.C. man’s lawsuit over marketing of Canada Dry ginger ale settled for $200K

Soda’s maker, Canada Dry Mott’s Inc., denied the allegations and any liability

Animal care manager Tracy Reynolds confirmed the lynx is the same wildcat that was spotted wandering North Kamloops in broad daylight on Sunday, Oct. 25. BC Wildlife Park.
Lynx found wandering Kamloops taken to BC Wildlife Park

While the lynx’s outward appearance was deemed normal, it actually had an abdominal infection

Most Read