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

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

Saanich police detectives are investigating a reported sexual assault that occurred near Glanford Park on the evening of Dec. 29, 2020 and have shared an artist’s rendering of the individual. (Image via Greater Victoria Crime Stoppers)
Saanich police release sketch of suspect sought in December sexual assault

Anyone with information asked to contact detectives, Crime Stoppers

Penelope the cat showed up safe and sound at her owner’s porch after an unusual trip through the news cycle in recent weeks. (Photo courtesy of Reuniting Owners with Animals Missing)
Penelope, cat and friend of the Victoria HarbourCats, returns home safe

The cat had an after an unusual trip through the news cycle in recent weeks

Sharon McNeill (right) was among the first batch of residents to pick up free seeds and seedlings from Ali Rivers, Central Saanich’s climate action specialist, during Thursday’s Seed Giveaway. (Wolf Depner/News Staff)
Central Saanich plants seeds in the fight against climate change

Seed Giveaway promotes environmental stewardship

Habitat Acquisition Trust has received provincial funding to help restore Garry oak ecosystems on southern Vancouver Island. (Photo by Jeremy da Silva)
Central Saanich park among sites for local Garry oak restoration projects

Habitat Acquisition Trust received $140,000 in funding for 12 projects

(The Canadian Press)
Trudeau won’t say whether Canada supports patent waiver for COVID-19 vaccines

‘Canada is at the table to help find a solution’

A sign indicating face coverings are required by the establishment is pictured on the front door of a business in Vancouver, B.C., Friday, April 9, 2021. COVID-19 cases have been on a steady increase in the province of British Columbia over the past week. THE CANADIAN PRESS/Jonathan Hayward
A sign indicating face coverings are required by the establishment is pictured on the front door of a business in Vancouver, B.C., Friday, April 9, 2021. COVID-19 cases have been on a steady increase in the province of British Columbia over the past week. THE CANADIAN PRESS/Jonathan Hayward
B.C. to start releasing neighbourhood-specific COVID numbers after data leak

Documents obtained by the Vancouver Sun show cases broken down by neighbourhoods

Ladysmith RCMP safely escorted the black bear to the woods near Ladysmith Cemetary. (Town of Ladysmith/Facebook photo)
Black bear tranquillized, relocated after wandering around residential Ladysmith

A juvenile black bear was spotted near 2nd Avenue earlier Friday morning

Provincial health officer Dr. Bonnie Henry and Health Minister Adrian Dix update B.C.’s COVID-19 situation at the B.C. legislature, April 29, 2021. (B.C. government)
B.C.’s COVID-19 case count creeps up, seven more deaths

445 people in hospital, 157 in intensive care

Summerland’s positive test rate is much higher than surrounding local health areas, according to internal BC CDC documents. (BC CDC)
Summerland 3rd behind Surrey, Abbotsford in daily per capita COVID-19 cases

Interior Health is rolling out additional vaccine availability to the community

Amazon is pausing its Prime Day marketing event in Canada this year amid ongoing COVID-19 outbreaks at its facilities in Ontario. THE CANADIAN PRESS/Nathan Denette
Amazon Prime Day halted in Canada due to COVID-19 outbreaks in warehouses

The event was postponed to protect the health and safety of employees and customers, the company says

At this Highway 3 check point, police officers will be asking for identification from drivers, documentation regarding the driver’s name and address, and the purpose for the driver’s travel. (RCMP)
No fines handed out at 1st COVID-19 roadblock as checks move across B.C.

Cpl. Chris Manseau says a total of 127 vehicles were stopped at a roadblock in the Manning Park area

A spectator looks on as the Olympic Caldron is relit in downtown Vancouver, Wednesday, February 12, 2020. THE CANADIAN PRESS/Jonathan Hayward
Small majority of B.C. residents in favour of a Vancouver 2030 Olympic bid: survey

A new survey shows a split over the possibility of public money being spent to organize and host the winter games

Most Read