Alan Arcand, Chief Economist for Canadian Manufacturers & Exporters (CME) recently presented CME’s economic outlook for 2021. We’ve summarized CME’s analysis for you:
COVID control key
As Canada grapples with its second wave of COVID-19 infections, it’s clear that controlling the spread of the virus is critical for economic recovery. While increasing vaccination will help boost Canada’s outlook, there is the potential for a third wave of infection in the spring from new coronavirus variants. Canada is currently in 12th place of OECD countries in terms of vaccination rates.
Canadian trade relatively strong
Although border controls were introduced at the beginning of the COVID-19 pandemic, the movement of goods has continued while the movement of people has slowed. As a result, Canadian merchandise trade has been relatively strong, though non-energy trade has recovered much more quickly than energy exports. Retail spending is now above pre-pandemic levels, performing remarkably well, with retail trade 6.0% higher in November 2020 than in February. This is likely buoyed in part by government supports such as the Canada Emergency Response Benefit.
Manufacturing to see partial recovery
Manufacturing, which was already on weak footing before the pandemic, is expected to see a partial recovery in 2021. Output is forecast to have dropped by 9.0% in 2020, with 5.9% recovery expected in 2021 and a 4.1% gain in 2022. All major manufacturing subsectors fell in 2020, with the largest decline seen in transportation equipment, primarily as a result of aerospace industry challenges. Petroleum and coal also posted a double-digit decline of 13.0%; although some recovery will take place in 2021, weakness will persist until the rate of vaccination picks up and people travel more regularly.
Household spending and saving altered
The pandemic has fueled a dramatic change in consumer spending patterns. Spending has shifted from services such as bars, restaurants, movies and gyms to goods such as groceries and renovations. Households have also increased their savings significantly; according to CIBC, Canadians accumulated $96 billion in excess cash during the pandemic. This will help drive recovery when restrictions are lifted.
Recovery to continue unevenly
Certain sectors have clearly fared better than others during the pandemic. Agriculture, finance & insurance, retail trade and real estate bounced back quickly after the initial shocks in 2020 and have recovered to pre-pandemic levels. Industries that rely on close contact, such as accommodation and food, and arts, entertainment and recreation have experienced deeper declines. This pattern is expected to continue in 2021, with more even recovery possible as vaccination rates increase.
CME expects Saskatchewan’s economy to recover by 3.7% in 2021 and 4.2% in 2022, after an estimated drop of 4.9% in 2020. Although agriculture exports increased because of growth in agricultural food exports, oil production, energy investment and uranium have struggled. Commodity prices are expected to improve in line with global economic recovery.
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