Facing Depression-era outlook, Canadian economy forecast to contract 6.2 per cent

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TORONTO — As some of the world’s top economists project 2020 to be the worst year for the global economy since the Great Depression, Canada is expected to suffer less than most of Europe and see an economic contraction on par with the United States.

That’s according to a new forecast released Tuesday by the International Monetary Fund that projects the world economy will shrink by 3 per cent this year, a much sharper drop than the 0.1 per cent dip during the 2008 recession.

For Canada, the economic outlook for 2020 is undoubtedly gloomy, with expected negative growth of 6.2 per cent. That’s about the same as the forecast for the U.S., which is expected to contract by 5.9 per cent, and the overall average for advanced economies, at 6.1 per cent.

The global outlook is “very dire,” according to Pedro Antunes, chief economist for the Conference Board of Canada.

“When we see global growth getting down around three per cent, we already assume that that’s a weak year,” he told CTV News Channel on Tuesday.

“So imagine now this forecast where the global economy is actually declining by three per cent, it’s just a phenomenal hit to the creation of income, the creation of real per-capita income across the world. So a big hit.”

The report also offered some longer-term optimism, projecting that the global economy will rebound in 2021 with 5.8 per cent growth and that Canada will see 4.2 per cent growth next year. However, the IMF warns that any future recovery is based on a number of uncertain factors, and it remains to be seen how long efforts such as physical distancing, limited travel and border shutdowns will last.

The federal government has committed more than $100 billion in economic measures to help individuals and businesses get through the crisis. In its forecast, the IMF cited Canada’s response as an example of effective policy making, including the decisions to defer federal tax and student loan payments and the newly-passed wage subsidy package aimed at helping companies keep employees on the payroll rather than resort to layoffs.

Antunes agrees that those measures are working.

“There is absolutely no doubt that we’re really supplementing income loss, especially to households, as much as possible through the various programs — federal and provincial, by the way,” he said.

As for Canada’s projected rebound, Antunes said it’s yet to be seen how shoppers will respond once the economy reopens.

“Will we be scarred by this in some way and not return to shop at retailers? I think that’s probably a dire outlook, I think probably there will be some balance going forward,” he said.

“Certainly I think there will be more uptake of online shopping. So there will be transitions I think for a number of players in the economy as they adapt and adjust to whatever the post-COVID world is going to look like.”

It’s certain that a return to normal life will lead to increased spending as businesses and shopping centres reopen. But just how big that increase will be remains unclear.

“There’s no doubt in my mind that as the anxiety passes, as we get through the worst of this crisis, people will return to shopping, people will return to working, and we will see a rebound,” Antunes said.

The IMF report also highlights those countries expected to be hurt most by the economic downturn.

Italy, which has the second-highest death toll in the world behind the U.S., is expected to be hit hardest of all countries measured, with negative growth of 9.1 per cent — three times higher than the global average. Spain is next, with negative growth of 8 per cent.

In China, where industrial activity and consumer spending is gradually resuming after months of severe containment efforts that included police-enforced lockdowns, the economy is expected to eke out growth of 1.2 per cent in 2020 and surge to 9.2 per cent growth in 2021, the highest in the world.

India, which, like China, is considered a developing economy, is expected to see growth of 1.9 per cent this year.

The projected global contraction of 3 per cent is an alarming swing from the IMF’s earlier 2020 forecast, released in January, which predicted global growth of 3.3 per cent.

Three months ago, the IMF projected that 160 countries would see income growth on a per-capita basis. In a post-pandemic world, it’s now expected that 170 countries will see negative per-capita income growth in 2020.

With files from The Associated Press​