Despite the botched vaccine rollout, the Canadian economy is on the ‘cusp of a boom’

[Financial Post – February 17, 2021]

The U.S. will be awash in stimulus dollars soon — and Canada must catch that wave

The word ‘boom’ is starting to show up in analysts reports.

While Canada has botched the vaccine rollout at least in the short-term, pundits believe the blip will soon be in the rearview mirror if more paralyzing delays are few and far between in the near future.

The good news is that the Pfizer-BioTech joint venture will deliver more than 878,000 doses in the next two weeks, while Moderna Inc. will also deliver 1.3 million doses some time in March.

Promising declines in COVID-19 cases and the reopening of Ontario and Quebec should also accelerate economic growth, assuming we can keep a lid on cases.

“Despite another wave of lockdowns both in Canada and across the globe, investors remain convinced that vaccinations will lead us out of this health crisis and that growth is poised to bounce back with the force of a loaded spring,” wrote Meny Grauman, analyst at Scotiabank, in a report on Canadian banks this morning. “We share this optimistic view and see Canada’s disappointing vaccine roll-out as only delaying (but not derailing) a coming economic boom.”

While the analyst believes we are “on the cusp of a post-pandemic economic boom,” the U.S. will likely get to see a growth spurt well before Canada.

On Tuesday, the International Monetary Fund said it had raised its GDP growth forecast for Canada to 4.4 per cent this year, compared to a 5.4 per cent decline in 2020.

Canada should also be a major beneficiary of the US$1.9-trillion fiscal stimulus in the United States, higher oil prices, and stronger-than-expected pent-up domestic demand, the fund noted.

“On the other hand, the recovery could be delayed by new waves of the virus. Hence, swift vaccination of the population should remain a key short-term policy priority,” the IMF said.

Indeed, it’s crucially important Canada gets a handle on the virus so it can ride a U.S. economic resurgence in the spring and summer.

Oxford Economics says it’s expecting “record-breaking” consumer spending as job growth accelerates in the spring in the United States.

“We expect the economy will grow 5.9 per cent in 2021 as an improved health situation supports a summer mini-boom in activity,” Gregory Daco, chief U.S. economist at Oxford Economics, said in a report.

It also appears that the much-castigated oilsands will ride to the rescue of the Canadian economy. Oil prices have jumped to US$60 per barrel this year, with global and North American demand rising, that should give exports a boost, and generate much-needed economic activity and tax dollars. Another positive is surging natural gas demand in North America, with Canadian benchmark prices hitting levels not seen in years.

“Recovery in oil prices is certainly good news for Canada’s energy sector. However, Canada’s economic fortunes continue to hinge on virus containment and the vaccination campaign,” wrote Ksenia Bushmaneva, economist at TD Bank.

In addition, consumer card spending has started to improve in the first week of February, a positive sign in advance of expected loosening of restrictions in Ontario and Quebec.

“The improvement in growth in card spending over the past week is explained by stronger spending on categories that have remained below normal levels since the pandemic started in mid-March,” Scotiabank said.

Other aspects of the Canadian economy also point to a rebound.

Royal Bank of Canada expects the manufacturing sector to grow 1.2 per cent in December, double the Statistics Canada forecast, while the retail sector will remain resilient thanks to e-commerce.

“The Canadian economy (outside of the hospitality sector) continued to show resilience through the second wave of lockdowns as households and businesses adapted to tighter restrictions,” said RBC. “The more narrowly imposed containment measures this time around, which left the industrial sector and other businesses outside the hospitality and retail sectors largely untouched, also helped.”

The conditions are ripe for a Canadian growth spurt — but it’s the vaccine rollouts that hold the key.

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