FILE - A Royal Bank of Canada sign is shown in the financial district in Toronto. (THE CANADIAN PRESS)

FILE - A Royal Bank of Canada sign is shown in the financial district in Toronto. (THE CANADIAN PRESS)

Economists predict recession coming due to COVID-19 and plunge in oil prices

Two consecutive quarters of negative growth is considered a recession

A recession is coming later this year as the economy is derailed by the impact of COVID-19 and a plunge in oil prices, economists said Friday.

Royal Bank of Canada forecasts the economy will grow at an annualized pace of 0.8 per cent in the first quarter, then contract in the second and third quarters of the year.

RBC is forecasting an annualized decline of 2.5 per cent in the second quarter and 0.8 per cent in the third quarter. Two consecutive quarters of negative growth is considered a recession.

ALSO READ: Trudeau promises $1 billion for COVID-19 research, resilience

“Key to the near term outlook and the pace of the recovery will be the policy response by governments,” RBC said in its report.

“The federal government’s plan to provide support measures to mitigate the impact of the virus included upping health care transfers, and increasing unemployment insurance, though both program increases were relatively limited.”

The prediction came as the Bank of Canada cut its key interest rate by half a percentage point to 0.75 per cent on Friday in addition to its half a percentage point cut last week.

ALSO READ: Bank of Canada cuts rate target to 0.75% in response to COVID-19

In making the unscheduled rate announcement, governor Stephen Poloz said it was clear that the spread of the novel coronavirus was having serious consequences on Canadian families and the economy.

“In addition, lower prices for oil, even since our last scheduled rate decision on March 4, will weigh heavily on the economy, particularly in energy intensive regions,” Poloz said.

“Combined with the other measures announced today, lower interest rates will help to support confidence in businesses and households. For example, borrowing costs will be lowered both for new purchases and through variable rate mortgages and mortgage renewals.”

CIBC echoed the RBC comments in its own report that Canada is also likely on the brink of a recession.

“We expect to see output dropping in both the second and third quarters in the US and Canada,” CIBC said in its report.

ALSO READ: COVID-19 closes sites around the world as stocks, oil prices sink

CIBC forecasts the economy will contract at an annual rate of 3.0 per cent in the second quarter and 3.4 per cent in the third quarter, before bouncing back and returning to growth in the final three months of the year.

The bank says fiscal and monetary stimulus will cushion the downside.

“But Canadians won’t really be out shopping again, and business confidence won’t roar back, until we have the virus under control, a better treatment, or a vaccine,” CIBC said.

“So, our assumption that growth resumes in the fourth quarter is therefore just that, an assumption about progress on some of those fronts here and in export markets abroad.”

The new forecasts came as governments advise against international travel and Ontario plans to close its schools for two weeks in addition to the week-long spring break holiday because of COVID-19.

Businesses have also moved to do their part in slowing the spread of the virus by urging employees to work from home where possible and limit travel.

ALSO READ: Canada’s top doctor warns against travelling on cruise ships over COVID-19

The Juno Awards scheduled for the weekend in Saskatoon have been cancelled, while the National Hockey League and National Basketball Association have suspended their seasons. Major League Baseball has ended spring training in Florida and pushed back the start of the season.

The RBC forecast is based on an assumption that the impact of the virus will run its course by the end of the first half of the year, but an economic recovery will be prevented by persistent low oil prices.

The price of oil tanked this week as Saudi Arabia launched a price war with Russia which rejected production cuts that the kingdom had wanted.

In response, the Saudis moved to ramp up production in a bid to make it more painful for other oil-producing countries to continue without production cuts.

The Bank of Canada moved Thursday with an expansion of its bond buy-back program and term repo operations to proactively support interbank funding.

ALSO READ: North American stock markets surge higher in early trading after crash on Monday

The central bank has said it remains committed to providing liquidity as required to support the functioning of the Canadian financial system.

In cutting rates last week, Poloz said the central bank wanted to cut rates “in a decisive manner” to provide a cushion for Canada’s economy against the effects of COVID-19.

He said the immediate effects the virus will have on business investment and consumer spending meant the downside risks to the economy today outweighed continuing concerns that cutting rates would fan financial vulnerabilities in Canada, such as high household debt.

The Canadian Press

Like us on Facebook and follow us on Twitter

Coronaviruseconomy

Get local stories you won't find anywhere else right to your inbox.
Sign up here

Just Posted

A health worker holds a vial of AstraZeneca vaccine to be administered to members of the police at a COVID-19 vaccination center in Mainz, Germany, Thursday, Feb. 25, 2021. (Andreas Arnold/dpa via AP)
43 new COVID-19 cases in Interior Health

368 cases in the region remain active

Fernie Meat Market owner Mark Brown with the newest addition to his Griz Pins collection. (Scott Tibballs / The Free Press)
Griz Days this weekend!

The 44th annual Griz Days will be mostly online

STA members and non-members alike are encouraged to send in photos of their trail adventures. (Photo contributed by Scott Tibballs)
STA plots another trail for Lunch Network

The network will consist of 6km of trail outside of Sparwood

A member of the Avalanche Canada South Rockies field team gathers important snowpack data that is used to produce daily avalanche forecasts for the region. Photo by Jennifer Coulter.
Warming temperatures increase avalanche risk heading into the weekend

Warm temperatures impact conditions, human behaviour

The Elk River Pedestrian Bridge in Sparwood could be at risk without mitigation works. (Scott Tibballs / The Free Press)
Sparwood secures grant funding for bridge repairs

The district has secured $703,000 in funding from UBCM

Health Minister Adrian Dix looks on as Dr. Bonnie Henry pauses for a moment as she gives her daily media briefing regarding COVID-19 for British Columbia in Victoria, B.C. THE CANADIAN PRESS/Jonathan Hayward
7 additional deaths and 542 new COVID-19 cases in B.C.

Provincial health officials reported 18 new COVID-19 cases linked to variants of concern

The City of Vancouver estimates there are 3,500 Canada geese in the city right now, and that number is growing. (Bruce Hogarth)
Help tame Vancouver’s Canada goose population by reporting nests: park officials

The city is asking residents to be on the lookout so staff can remove nests or addle eggs

Chief Justice Christopher Hinkson (Office of the Chief Justice)
Judge questions whether B.C.’s top doctor appreciated right to religious freedom

Lawyer for province says Dr. Henry has outlined the reasons for her orders publicly

Cannabis bought in British Columbia (Ashley Wadhwani/Black Press Media)
Is it time to start thinking about greener ways to package cannabis?

Packaging suppliers are still figuring eco-friendly and affordable packaging options that fit the mandates of Cannabis Regulations

A sample of guns seized at the Pacific Highway border crossing from the U.S. into B.C. in 2014. Guns smuggled from the U.S. are used in criminal activity, often associated with drug gangs. (Canada Border Service Agency)
B.C. moves to seize vehicles transporting illegal firearms

Bill bans sale of imitation or BB guns to young people

BC Housing minister David Eby is concerned that Penticton council’s decision to close a local homeless shelter will result in a “tent city” similar to this one in Everett, Wa. (Olivia Vanni / Black Press file)
‘Disappointed and baffled’ B.C. housing minister warns of tent city in Penticton

Penticton council’s decision to close a local homeless shelter could create tent city, says David Eby

A recently published study out of UBC has found a link between life satisfaction levels and overall health. (Pixabay)
Satisfied with life? It’s likely you’re healthier for it: UBC study

UBC psychologists have found those more satisfied with their life have a 26% reduced risk of dying

A vial of some of the first 500,000 of the two million AstraZeneca COVID-19 vaccine doses that Canada has secured through a deal with the Serum Institute of India in partnership with Verity Pharma at a facility in Milton, Ont., on Wednesday, March 3, 2021. THE CANADIAN PRESS/Carlos Osorio - POOL
Federal panel recommends 4-month gap between COVID vaccine doses due to limited supply

The recommendation applies to all COVID-19 vaccines currently approved in Canada

A vial of Oxford-AstraZeneca COVID-19 vaccine is pictured at a family doctor office, Thursday, Feb. 25, 2021 in Paris. THE CANADIAN PRESS/AP -Christophe Ena
Trudeau ‘optimistic’ that timeline for rollout of COVID vaccines can be accelerated

Canada set to receive more than 6M COVID-19 vaccine dose than initially expected, by end of March

Most Read