2 Minute Brief
While still early days, 2020 has already proven itself to be exceedingly disruptive. In the weeks since the release of our first B.C. Economic Review and Outlook of 2020, two major developments have caused us to reconsider our economic forecast for 2020-21. This unprecedented action is prompted by the negative impacts emerging from the recent blockades of transport infrastructure across Canada and the global COVID-19 outbreak.
The bad news
We have reduced our 2020 Canadian GDP growth forecast by half a percentage point, from 1.6% to 1.1%. This is based on the domestic blockades stunting growth by 0.2 percentage points (pp) and the effects of the COVID-19 outbreak subtracting another 0.3pp.
BCBC has also downgraded its 2020 provincial GDP growth forecast by 0.6 pp. We now expect the B.C. economy to grow in the 1.3-1.5% range this year, with the domestic blockades trimming growth by 0.1pp and the impact of COVID-19 subtracting a further 0.5pp.
It is important to note, these forecasts are based on the assumption that the COVID-19 outbreak will subside by mid-year and that intermittent transport blockades do not become a regular part of economic life in Canada. However, the risks to our outlook remain firmly weighted to the downside.
Which industries will be affected most?
Air transportation, tourism and hospitality will be especially hard hit and will take longer to recover. Shipping and goods flow have also fallen sharply, impacting supply chains and activity in B.C.’s ports. B.C.’s exports will also slip as the global economy slows.
B.C.’s outlook is downgraded more than Canada’s because our province is more interconnected with China and Asia. The tourism, transport and logistics sectors are also larger proportions of the B.C. economy.
What can be done?
Due to very high levels of debt relative to GDP across all sectors (i.e. corporations, households and governments), Canada is exposed to global financial shocks caused by COVID-19.
Canada’s home-grown infrastructure disruptions could also have long-lasting negative effects on Canada’s potential GDP growth rate for years to come.
The emergence of these additional challenges to an already underwhelming Canadian economic backdrop has implications for governments, including the federal government as it works to finalize its 2020 budget. Now more than ever, policymakers need to be focused on bolstering business confidence, encouraging investment in Canada, reducing uncertainty, and improving the country’s faltering global competitiveness.