The economy seems to have avoided the most pessimistic scenario regarding the COVID-19 pandemic, the Bank of Canada estimated on Wednesday, maintaining its key rate at 0.25%, a level it considers to be its floor value.
The central bank has also modified some programs to facilitate credit flows, pointing to improved indicators for the market and the economy as a whole.
Overall, the central bank said on Wednesday that it believes the pandemic’s impact on the world economy has peaked, but has covered its outlook by warning that uncertainty about the recovery will remain high.
Since the pandemic hit Canada and public health restrictions essentially crippled the economy in March, the country has experienced a historic decline in jobs and production. The most recent federal data now shows that almost 8.4 million people have applied for the Canada emergency benefit for workers affected by the crisis. These figures are used as an approximation of the overall labor market, as the benefit is paid to anyone who is unemployed or earning less than $ 1,000 per month due to COVID-19.
The Statistics Canada labor market survey for May will be released on Friday and forecasts are for further job losses in addition to the three million job losses accumulated in March and April.
The central bank also updated its forecasts for gross domestic product (GDP) on Wednesday and is now forecasting a decline of between 10% and 20% for the second quarter, compared to the fourth quarter of 2019, when it mentioned in April a decrease between 15% and 30%.
Bank expects economy to return to growth in third quarter thanks to government spending and lower interest rates, which “cushion the impact of the closings on disposable income and help lay the foundation of a recovery ”. Despite this, she notes that the outlook for the second half of 2020, and later, remains “highly blurred”.
“Anyone who believes that we will have a V-shaped recovery is wrong, I think,” the president of the Canadian Chamber of Commerce, Perrin Beatty, told a Senate committee on Tuesday.
He said reviving the economy would require a “consistent across provincial and territorial boundaries” strategy that takes into account public health concerns in managing the pandemic, so that businesses, workers and consumers feel “that ‘it is safe to do business again’.
The central bank’s role in the recovery will go to Tiff Macklem, who started his new governorship on Wednesday, succeeding Stephen Poloz, whose seven-year tenure at the helm ended on Tuesday.
Macklem has participated in the deliberations of the bank’s board of directors as an observer for the past few days, the statement said, adding that the new governor “agrees with the rate decision and the measures announced.”
CIBC chief economist Royce Mendes said it may not be too long before Macklem makes his mark on banking policy, as there is “a lot of work to do to bring the economy back to life. “