By Thomas I. Likness
EBC Edmonton Bureau
EDMONTON (Eagle News) — Canada’s economic recovery will be slow and unlikely to reach pre-pandemic levels for at least 18 month, according to the country’s central bank.
“While economies are re-opening, the global and Canadian outlook is extremely uncertain, given the unpredictability of the course of the COVID-19 pandemic,” the Bank of Canada said in a statement Wednesday.
The bank said it will maintain the overnight interest rate at one-quarter of a percent until market conditions improve. Interest rates will remain low for the foreseeable future.
The bank noted after a sharp drop in the first half of 2020, global economic activity is picking up. Public health restrictions pushed economic activity in the second quarter down 15% from the level at the end of 2019. That’s the deepest decline since the Great Depression of the 1930s.
“The Canadian economy is starting to recover as it reopens from the shutdowns needed to limit the virus spread,” said the bank. ““There are early signs that the reopening of businesses and pent-up demand are leading to an initial bounce-back in employment and output.”
The bank expects economic slack to persist as demand lags that of supply, creating significant disinflationary pressures.
Inflation is close to zero, pulled down by sharp declines in components such as gasoline and travel services. Inflation is expected to remain weak before gradually strengthening toward 2% as the drag from low gas prices and other temporary effects dissipates and demand recovers, reducing economic slack.
Looking at all of 2020, the bank expects the economy to shrink by 7.8% in 2020. It should rebound by 5.1% in 2021 and 3.7% in 2022. The predictions are based on the assumption there is no widespread second wave of the virus.
“The timing and pace of the recovery varies among regions and could be hampered by a resurgence of infections and the limited capacity of some countries to contain the virus or support their economies,” the bank said.
(Eagle News Service)