By RSM Canada

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Canada’s economic recovery to take longer than the U.S. following COVID-19: RSM Canada

Apr 21, 2020 | 7:52 AM

RSM Canada (“RSM”), the leading global provider of audit, tax and consulting services focused on middle market businesses, today launched its first 2020 issue of ‘The Real Economy: Canada‘ – a quarterly report that provides Canadian businesses with economic analysis and insights into factors driving growth or economic headwinds in Canada’s middle market.

As the COVID-19 pandemic continues to disrupt the global economy, this edition of the report shines a light on just how deep the impact will be for Canada’s economy as well as its business community. Through an analysis of in-depth data, the latest edition also outlines recommendations on how the government and financial authorities can curtail the damage and explores what Canada’s economic recovery could look like in the months ahead.

Key findings in this quarter’s report include:

1. Canada’s economic recovery will take longer than the U.S.

· The current financial system shock has not set off a broader financial and banking crisis thanks, in part, to activist and globally coordinated monetary policy.

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· This means the recovery will not be L-shaped, as the U.S. economy experienced after the Great Recession, but could take on more of a ‘U’-shaped recovery pattern due to:

· Pre-existing signs of economic weakness prior to the onset of COVID-19.

· The U.S.-China trade war, which disproportionately affected Canada given the degree of integration between the U.S. and Canadian economies.

· The Saudi-Russian oil price war, which impacted oil and gas pricing, and a significant reduction in exports such as petroleum, automobiles and automobile parts.

· Already-high levels of household debt, which have increased substantially over the past several years and remain the highest in the G-7. Debt levels may increase further due to economic uncertainty during COVID-19.

2. The COVID-related shock to Canada’s financial system has resulted in four to seven standard deviation drops in the RSM Canada Financial Conditions Index

3. These shocks to the financial system are transmitted to the real economy via a loss in income, a decline in investment, with the propensity to borrow and lend collapsing.

“Canada’s financial system has experienced a series of devastating blows in the wake of the global equity market collapse that began in the last weeks of February, and which has us on the verge of a financial crisis that could rival the global financial crisis of 2008,” said Joe Brusuelas, chief economist with RSM US LLP. “Monetary authorities have responded appropriately with measures such as easing of interest rates, but now we need to see fiscal authorities implement meaningful measures to protect and preserve the real economy.”

“Measures being taken to stem the spread of COVID-19 have ravaged Canada’s economy,” said Alex Kotsopoulos, vice president, projects and economics with RSM Canada. “As we look ahead to recovery, we expect it will be more tepid than originally thought and, unfortunately, for a variety of reasons it will take longer for us to rebound in Canada than the U.S.”

For more information on ‘The Real Economy: Canada’ report, or to download it, click here.

About RSM

RSM’s purpose is to deliver the power of being understood to our clients, colleagues and communities through world-class audit, tax and consulting services focused on middle market businesses. The clients we serve are the engine of global commerce and economic growth, and we are focused on developing leading professionals and services to meet their evolving needs in today’s ever-changing business environment.

RSM Canada LLP provides public accounting services and is the Canadian member firm of RSM International, a global network of independent audit, tax and consulting firms with more than 41,000 people in 116 countries. RSM Alberta LLP is a limited liability partnership and independent legal entity that provides public accounting services. RSM Canada Consulting LP provides consulting services and is an affiliate of RSM US LLP, a member firm of RSM International. For more information visit rsmcanada.com, like us on Facebook, follow us on Twitter and/or connect with us on LinkedIn.