Canada's economic outlook more optimistic than before
However industry and trade still in shock, suggests new report
RSM Canada ("RSM"), the leading global provider of audit, tax and consulting services focused on middle market businesses, today launched its second 2020 issue of "The Real Economy: Canada” – a quarterly report that provides Canadian businesses with economic analysis and insights into factors driving growth, or economic headwinds, in Canada's middle market.
As Canada moves past the initial shutdown phase of the COVID-19 pandemic and provinces start to reopen, the Real Economy: Canada report shines a light on the economic impact of the pandemic so far, what the outlook is for the near future, and explores some of the measures government and other authorities can take as the country looks towards its recovery.
Key findings in this quarter’s report include:
1. After a big drop in April, Canada’s economy is slowly on the up, according to high-frequency data from re-opening provinces.
- Data such as transport use, and even restaurant bookings, show that the economy is performing better than predicted after a drop of 11.6% in April.
2. Despite promising economic indications, Canada’s industrial sector is at the same level of distress as in the Great Depression.
- Signs of economic recovery don’t offset the huge shock to trade and supply chain.
- Industry’s contribution to GDP industry fell by nearly 6% in March, and new orders dropped by nearly 40% in April.
- The sector was already in decline due to the worldwide manufacturing recession brought on by the U.S. trade war.
3. To continue economic recovery, and to pay down national debt following the pandemic, the government and authorities need to boost investment today.
- Canada’s national debt will increase following the pandemic, and the country will need to ‘grow’ its way out of it.
- Three key investment areas to boost productivity include:
- Digital infrastructure – for example, continue investment in broadband projects for more rural areas of Canada
- Investment in goods movement
- Investment to reduce congestion in urban centres
4. Certain provinces, industries and age groups are at risk of being left behind in Canada’s shift to remote work.
- While 40% of the labour force in provinces like Ontario and British Columbia are capable of working from home, only 30% are able in provinces with a greater focus on natural resources.
- Those who are younger and have obtained college educations or higher are more likely to be able to work from different locations. Meanwhile, those older than 44 have a reduced capacity to work through digital means.
- While 85% of those employed in finance, education or professional vocations can work remotely, only 10 to 25% are able in the retail, manufacturing and agricultural industries.
“The pandemic has certainly dealt a tough blow to Canada’s industrial sector – an area already struggling back in 2019 as a result of the ongoing trade war between the U.S. and China,” said Joe Brusuelas, chief economist with RSM US LLP. “Despite some promising short-term economic indicators, and the Bank of Canada’s steps to accommodate stimulus measures, it’s imperative that the authorities make prudent investments to keep industrial recovery moving in the right direction and look to boost trade efforts as much as possible.”
“Following the slow re-opening of provinces, short-term data shows that the Canadian economy is performing at a better rate than previously predicted,” adds Alex Kotsopoulos, partner, projects and economics with RSM Canada. “However, it’s likely that provinces with a greater proportion of their economy dedicated to areas such as natural resources will lag behind others, and additional investment or focus may be needed to support these areas.”
“As we look to the future, the financial measures taken to address this pandemic will increase Canada’s national debt, and the country will essentially need to grow its way out of that debt” continues Kotsopoulos. “By making important investments today in areas such as infrastructure and goods movement, the federal government can get ahead early and begin to set the groundwork for that growth.”
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