CANADA’S ECONOMY ON THE REBOUND AFTER LOCKDOWN

OTTAWA• The Canadian economy is showing green shoots and is poised for a sharp recovery as provincial governments gradually lift COVID-19 restrictions, chief economists at Canada’s major banks said.

And yet, it could be years before the economy returns to pre-pandemic levels, as some battered sectors continue to drag on overall growth, several economists told the House of Commons finance committee Thursday.

Their comments come as improved labour and consumer spending data in May provide at least some room for optimism on the Canadian economy, after the COVID-19 pandemic earlier this year pummelled corporate balance sheets and sent governments deep into debt. The federal budget watchdog on Thursday posted a “significant” update to its economic outlook for Canada, estimating a much smaller contraction in GDP than it projected in April.

“Canada has just experienced the deepest, sharpest economic downturn in the postwar era, but it also now looks to have been the shortest recession ever as well,” said Douglas Porter, chief economist at BMO Bank of Montreal.

His comments were echoed by other leading economists, who said the Canadian economy is likely headed for a steep climb in coming months, after scraping bottom in the second quarter of 2020.

“It’s very important to think about this in two halves: the first part of the year (was) a tremendously damaging economic scenario, and the second part of the year, obviously a very significant rebound as we reopen,” said Jean-François Perrault, chief economist at Scotiabank.

Higher rates of growth in the housing and automotive sectors in particular have boosted growth over the past month, while the labour market showed modest signs of improvement. But Perrault also cautioned that Canada, similar to other economies, would have “a long way to go” before returning to typical levels of activity.

“These are all indications that the economy is on the path to normalizing — but it shouldn’t be read or interpreted as the economy is going back to where it was.”

Sharp improvements in labour and consumer spending levels come as the Liberal government continues to pour billions into COVID-19 financial assistance programs, which economists said have staved off economic ruin.

Still, improved economic data will only intensify pressure on Prime Minister Justin Trudeau to begin unwinding support programs like the Canada Emergency Response Benefit (CERB), which provides $2,000 a month to jobless Canadians.