High savings, vaccine rollout, boost outlook for Canada
Even as Canadian policy-makers ramp up COVID-19 restrictions, economists are becoming more optimistic about the country's outlook.
Strong fiscal support, the start of vaccinations and a growing pile of savings in consumers' accounts have caused forecasters to revise their views of Canada's recovery. Economists surveyed by Bloomberg this month see output expanding by an average 5.4 per cent annualized in the final three quarters of 2021, much higher than the 3.8 per cent forecast in November.
Eric Lascelles, chief economist at RBC Global Asset Management, said in a report to investors last week he's among those raising growth forecasts, citing “our belief that vaccines will prove a game-changer, and expectations that government stimulus will remain substantially in place.”
Canada has provided the most generous emergency response in the Group of Seven, according to International Monetary Fund data. The longer-term implications of such massive deficit spending are unclear, but it has left the country well-positioned for a strong 2021 rebound, mostly on the potential upside from consumption when vaccines roll out and restrictions lift.
“In the case of a permanent reopening starting toward the end of the second half of 2021, the elevated household savings rate could unleash major pent-up demand, especially on the services side of the economy,” Dominique Lapointe, an economist at Laurentian Bank Securities, said by email.
Generous government support and limited spending options have been a boon to Canadians' personal checking accounts, which have swelled over the past year by $103 billion, or 34 per cent, the most in more than three decades, according to Bloomberg calculations.
“People in many cases were getting more support than they needed in the early going and so they saved that,” Lascelles said by phone. “As the fiscal support starts to fade or as they lose eligibility for certain programs, we will start to see them tapping that.”
Andrew Husby of Bloomberg Economics said Canada's outsized fiscal support and progress on vaccine distribution “could drive a stronger-than-expected recovery later in the spring. ... We do not see a rate hike until 2023, though risks could tilt toward speculation of an earlier move.”