Economic growth – Economic growth had picked up slightly between the first and second waves of the pandemic but stalled again near the end of 2020 as infection rates rose. The Bank of Canada is predicting that our economy will shrink by about 2.5 per cent in the first quarter of 2021 but pick up later in the year as vaccines reach more people. The economic recovery in the United States, Canada’s biggest trading partner, looks promising as their federal government is planning substantial stimulus and recovery funding.
Jobs – Employment for higher wage workers has returned to pre-pandemic levels, but remains about 20 per cent lower for low-wage workers, especially those in highly affected industries such as hospitality, tourism and food services. Long term unemployment has increased dramatically, as almost half a million unemployed workers have been without work for 27 weeks or more.
Wages – The deep and dramatic impacts of this recession will affect bargaining, with public sector employers likely to be especially reluctant to move on wages. The need to recruit and retain more workers in child care, education and health care may result in long overdue wage boosts for these sectors.
Inflation – Overall inflation has been low, coming in at 1.0 per cent in January. The Bank of Canada expects inflation to remain below 2.0 per cent until 2023, leaving significant room for governments to increase spending without causing excess inflation. There are concerns that unprecedented stimulus will spur inflation, but economists at the International Monetary Fund currently think that is unlikely.
Interest rates – The Bank of Canada expects to maintain its key lending rate at 0.25 per cent for an extended period, since it forecasts that inflation will remain well below its target range of 1.0 to 3.0 per cent until at least 2023. The bank will continue to provide support through purchases of long-term government bonds. Government borrowing remains affordable, with 30-year federal government bonds selling at 2.0 per cent interest.