The Conference Board of Canada has released its two-year economic outlook and forecasts that real gross domestic product (GDP) will grow 5.3% in 2021 and 3.5% in 2022 respectively.
The growth forecasts for the next two years follow an estimated economic contraction of 5.3% in 2020, one of the deepest recessions in Canadian history. Going forward, the strength of Canada’s economic recovery will largely depend on the successful distribution of vaccines against COVID-19.
“The news that safe and effective vaccines against COVID-19 have begun to be distributed has provided optimism that the pandemic could soon be beaten,” said Pedro Antunes, Chief Economist at The Conference Board of Canada, in a news release. “A successful rollout of vaccines will encourage Canadian households to spend some of what they’ve amassed in savings over the past year, which will help bolster the economy.”
Household finances in Canada are in great shape thanks to government support and travel bans that have cut spending on foreign travel to almost nothing, said the Conference Board. Aggregate household savings swelled from $18 billion in 2019 to over $200 billion in 2020.
Even with a rebound in spending this year, household balance sheets will average $113 billion, or roughly five times what was normally held in savings in the four years prior to the pandemic.
While households have the stockpiles to grow their spending, they are tentative to do so. Canada’s economy remains a long way from normal. Employment declined in December for the first time since last April and many Canadian industries will not fully recover until the second half of 2021, when the health risks associated with COVID-19 will have dissipated, borders re-opened and households and businesses can get back to normal.
The Conference Board of Canada expects a global recovery as vaccines are made available across advanced and developing economies, which will help bolster business confidence, investment, and trade, especially as borders reopen over the second half of 2021.
As such, economic activity in Canada is forecast to pick up on its own without the need for the additional fiscal stimulus of between $70 billion and $100 billion that the federal government announced in its November 30 fiscal update.
The Conference Board has revised its forecast for Canada’s real GDP for 2020 from -6.6% to -5.3% in the new two-year outlook. Regarding the global economy, The Conference Board estimates that real GDP plunged 4.3% in 2020—a much steeper drop than in 2009 when the world was shaken by the Great Recession.
In 2021, the widespread availability of a vaccine in the developed world will lead to rising consumer and business confidence, which will boost economic activity, especially in the second half of 2021. Real GDP for the global economy is forecast to increase by close to 5.0% this year.