OTTAWA, ON (May 5, 2020) As Canada’s economy begins to feel the pressure from COVID-19, global economic downturn, and strict lockdown measures, the Macdonald-Laurier Institute leading economic index plunged by 1.7 percent. This sudden reversal from a slow growth trend represents the largest single month drop ever tracked by the LEI.
Comprising of ten components, the LEI is a tool designed to predict Canada’s future economic growth and track changes within Canada’s business cycle. This latest update reflects data from March, capturing the first wave of major impacts stemming from the COVID-19 pandemic and its consequences.
Of the 10 components measured in the LEI, eight declined. According to LEI author and MLI Munk Senior Fellow Philip Cross, the most dramatically negative indicator came from a record number of new Employment Insurance claims. Commodity prices, the stock market and consumer sentiment also posted large setbacks.
“The speed and depth of this downturn is simply unparalleled,” warns Cross. “Statistics Canada has already posted huge losses both in GDP and employment, and this LEI update suggests that the worst is yet to come for the economy.”
While the future is far from certain, Canada is clearly steaming toward a serious recession. The data reflected in this LEI update suggests that virtually all sectors of the economy have been hammered by this crisis. Moreover, with some indicators of economic health, such as individual and business insolvencies, likely lagging behind and therefore obscuring the true depth of the economic damage, this latest LEI update may simply be the first in a long string of bad economic news.
According to Cross, policy-makers have likely underestimated the economic toll caused by strict lockdown measures and have overestimated their ability to stave off a serious crisis.
“The economy will not come roaring back; policy-makers should, at this point, abandon the dream of a ‘V-shaped recovery’ and should instead brace for a long and deep economic contraction that may curtail growth and productivity for years to come,” argues Cross.
“The word ‘recession’ doesn’t fully capture how bad this situation really is. This situation is closer to a freefall of sorts.”
The health imperatives of dealing with COVID-19 cannot totally blind us to the long-term effects of our lockdown strategy on human wellbeing. While health should remain the top priority, policy-makers need to consider more seriously the second and third order consequences of their current approach. This latest LEI update suggests that the economic toll of this crisis had not been fully considered.
“The COVID-19 crisis effects all elements of society, and so all elements of society should be considered when public policy is being developed,” says Cross. “This is as true for human health as it is for the economy.”
To learn more about the leading economic indicator, click here.
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