COVID-19 has world's major economies on track for worst quarterly decline in history

The flood of negative economic indicators caused by the novel coronavirus is set to reach epic proportions in the second quarter, with the world's major economies poised to see their worst ever quarterly decline on record. 

Yearly numbers should be better, but economists warn recovery could take months

Workers board up a Aritzia Inc. clothing store on Robson Street in Vancouver. The lockdown is leading to a recession unlike any seen before in modern economic history. (Taehoon Kim/Bloomberg)

The flood of negative economic indicators caused by COVID-19 is set to reach epic proportions in the second quarter, with the world's major economies poised to see a decline unlike any before.

"I don't think there's any question that the second quarter of this year is going to show the worst numbers for all major economies in recorded history," said Brett House, deputy chief economist at Scotiabank Economics.

In the U.S., Morgan Stanley economists are predicting a 30.1 per cent drop in gross domestic product from April to June compared to last year.

The Bank of Canada says there could be a similar decline in GDP in this country, with economic activity 15 to 30 per cent lower in the second three months of the year compared to the end of 2019. But the bank also said there's no point in releasing a formal forecast for the second quarter.

"The outlook is too uncertain at this point to provide a complete forecast," the bank said in its policy announcement Wednesday.

Scotiabank's House said recessions normally play out over multiple quarters. "In this case, we are compressing the downturn into one [quarter]. Which means the sharpness is particularly pronounced. And that's why we're getting these record numbers."

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The historic numbers, the breakneck speed of the downturn, the job losses centred in the labour-intensive services sector, the unpredictability of the virus and the long-term effect on consumer behaviour all make the COVID-19 recession unlike any other seen in modern economic history. All of those factors also make it next to impossible to determine how long it will take to recover. 

"Economists for the first time ever are making their economic predictions based off of medical predictions. That's creating a fog of uncertainty," said Frances Donald, chief economist and head of Macro Strategy at Manulife Investment Management.

"And it's leading major central banks, including the Bank of Canada, to throw up their hands and say 'forecasting? We just can't do it.'" 

More indicators

There are a slew of other new indicators pointing to the unprecedented nature of the economic downturn.

Normally, Statistics Canada releases monthly GDP data 60 days after the period ends. But the pandemic prompted the agency to produce what it calls a flash estimate of GDP for March on Wednesday, even before several indicators for February are released. 

Stats Can said its estimate indicates a decline of approximately 9 per cent in March, the largest one-month decline in GDP since the series started in 1961.

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Canada is also being hammered by collapsing oil prices, caused by a price war between OPEC members Saudi Arabia and Russia, but made exponentially worse by world lockdowns.

A report by the International Energy Agency (IEA) released Wednesday said global demand for oil will drop by a further 29 million barrels per day in April, a record decline back to levels not seen since the mid-1990s. The IEA also said the buildup of unsold oil from the first part of the year "threatens to overwhelm the logistics of the oil industry — ships, pipelines and storage tanks — in the coming weeks."

COVID-19 also caused Canadian home sales to plunge 14 per cent in March. But even that number is out of date.

Consider early numbers for Toronto, Canada's largest real estate market, show a drop in listings of 64 per cent in the first two weeks of April and sales down a staggering 80 per cent. 

"The people who are in the marketplace are serious buyers but just the sheer volume has dropped off significantly," said Cailey Heaps Estrin, managing director of Heaps Estrin Real Estate in Toronto.

She said they have had a number of sales including one this week with three bidders that sold for more than $100,000 over asking. But she said they're not proactively going out and bringing listings to market.

"We are having video meetings with people getting ready to launch their listings once the [lockdowns] are lifted." 

Stock markets and the economy are reeling from COVID-19. (Alex Kraus/Bloomberg News)

But even when travel and social distancing restrictions are relaxed, few economists expect the overall economy to immediately spring back to life.

"It's pretty easy for us to turn a manufacturing plant back on and have widgets come out on a conveyor belt," said Manulife's Frances Donald. "It's a lot harder to tell people 'go shake hands, go to a movie theatre, sit in a restaurant' when they still feel their personal safety is at risk." 

"This recession, the length of it, is really going to be dependent on the evolution of the virus."

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