WINNIPEG,(MarketsFarm) – The Conference Board of Canada believes the country is likely heading towards an economic recession.
The business think-tank issued its spring outlook on Tuesday, and noted economic growth in the fourth quarter of 2019, “was already on a precarious footing.” Now with the economic downturn stemming from the COVID-19 pandemic, plus the rail blockades and drop in crude oil prices, the board forecast the economy to contract by 2.7 per cent in the second quarter. Also, it projected economic growth in Canada to be 0.3 per cent in 2020.
“Despite the fact that the global economy is currently shaken at its core, we expect to see growth resume in the third quarter, meaning that the economy will avoid a technical recession. However, due to the unpredictability of the coronavirus, there are still huge downside risks to the outlook,” said Matthew Stewart, Director Economic Forecasting, in a prepared statement.
The Conference Board blamed the rail blockades in February for slowing economic growth in the first quarter by 0.3 per cent. The blockades were organized by supporters of the Wet’suwet’en heredity chiefs who opposed the Coastal GasLink pipeline crossing their traditional territory. Canadian National Railway, which was heavily targeted, estimated that 10,000 railcars were delayed in getting to British Columbia ports at Vancouver and Prince Rupert.
The crude oil price war between Saudi Arabia and Russia started at a time when global demand was already on the wane due to COVID-19 and stocks were already plentiful. With Saudi Arabia and its OPEC partners already grappling with production cuts of 2.1 million barrels per day (BPD), the Saudis proposed to further cut production by another 1.5 million BPD. However on March 6, Russia balked at the proposal and a few days later Saudi Arabia slashed its prices and prepared to ramp up production from its current level of nine million BPD to 13 million.
The board also noted the Bank of Canada cut its key interest rate by 100 basis points in a short period of time. Earlier this month the central bank, in its regularly scheduled announcement, cut its rate from 1.75 per cent to 1.25. Following the devastating effect of the oil price war and growing impact of COVID-19 on the economy, the bank hacked off another 50 basis points to 0.75 per cent on a few days later.
While the Conference Board foresees doom and gloom for 2020, it predicted growth of 2.5 per cent for the following year.