Canada's Headed Into Its Worst-Ever Economic Slump, Bank Of Canada Says

OTTAWA (Reuters) ― The Bank of Canada on Wednesday said the coronavirus outbreak was set to trigger the biggest ever near-term Canadian downturn but suspended its regular economic forecasts, citing exceptional uncertainty over the outlook.

Canada’s central bank held interest rates steady at 0.25 per cent as expected, added provincial and corporate bonds to its quantitative easing program, and said it “stands ready to adjust the scale or duration of its programs if necessary.” 

In its quarterly monetary policy report, the bank outlined two recovery scenarios under which real gross domestic product (GDP) would shrink. It estimated real GDP would fall by 1 pr cent to 3 per cent in the first quarter and would contract by 15 per cent to 30 per cent in the second quarter, both compared with the fourth quarter of 2019.

“Despite a high level of uncertainty, these estimates suggest that the near-term downturn will be the sharpest on record,” the bank said, explaining it had dropped its forecasts “given the uncertainty surrounding the outlook.”

The overall inflation rate is expected to dive to around zero per cent in the second quarter of 2020, largely due to a sharp drop in gas prices, the central bank said.

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The bank slashed its overnight interest rate by half a percentage point three separate times in March to 0.25 per cent and launched its first-ever quantitative easing program.

The outbreak is having “significant and negative” effects on total supply and demand in the near term ― a reality, it added, that has been amplified by the oil price drop shock.

“Considerable uncertainty surrounds the timing and evolution of the recovery,” the bank said.

Officials across Canada have ordered non-essential businesses closed and have urged people to stay home.

Reduced hours and lower productivity, the bank said, means “capacity in the Canadian economy will decline sharply and may recover only gradually.”

In its World Economic Outlook released on Tuesday, the International Monetary Fund (IMF) said it now expects Canada’s GDP to contract 6.2 per cent this year.

In a flash forecast also released on Wednesday, Statistics Canada said the country’s economy shrank a record 9 per cent in March from February as the coronavirus forced the shutdown of economic activity.

(Reporting by Kelsey Johnson and David Ljunggren in Ottawa; Additional reporting by Dale Smith and Steve Scherer in Ottawa, Fergal Smith in Toronto; Editing by Jonathan Oatis)

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