How hard have the COVID-19 health crisis and containment measures hit the Canadian economy? The impact has been almost unimaginable.
Statistics Canada produced a report for March to gauge the current economy amid the twin hits of the virus effects and the oil price collapse. Its preliminary estimate for industry gross domestic product (GDP) points to a shocking 9% decline in economic activity from February. During the Great Recession, the deepest one-month drop was 1.4% in December 2008.
Consistent with March Labour Force Survey data, which showed more than one million job losses, the report found services were hardest hit with severe contractions in travel and tourism, restaurants, accommodations and other services. Including the March estimate, Q1 GDP was estimated to have contracted 2.6% from Q4 2019, which was much worse than our forecast. This marks an annualized contraction of about 10% for Q1.
Q2 will likely be worse. Containment efforts ramped up in late March into April. Based on applications for Employment Insurance and the Canada Emergency Response Benefit, employment likely declined in the range of two million persons. The number of employed persons working zero or reduced hours, many of whom will fall into technical unemployment in April, already reached two million in March.
The Bank of Canada noted in its latest policy rate announcement that a GDP contraction of 15% to 30% in Q2 2020 relative to Q4 2019 can be expected. This implies an annualized second-quarter decline of 40% to 70%.
There is a silver lining. Signs are emerging that a gradual restart to the economy will occur later this quarter assuming the epidemic curve improves. That said, recoveries will be uneven among provinces and sectors and a return to normal some period away given there is no vaccine and some ongoing containment measures will be required.
B.C. Multiple Listing Service home sales fell for a third straight month in March. According to the latest Canadian Real Estate Association figures, sales slipped to a mild 6,244 units, down 7.2% from February.
Monthly sales retreated in most areas, with declines of 6.2% in the Lower Mainland-Southwest markets, 12% on the Island, 5% in Northern B.C., and 5% in the southern Interior.•
Bryan Yu is deputy chief economist at Central 1 Credit Union.