Tiff Macklem predicts a “prolonged and bumpy” economic rebound after COVID-19

According to the governor of the Bank of Canada, Tiff Macklem, the economy will face a long-term damage from the COVID-19 pandemic, and the path to a full recovery will be “prolonged and bumpy”.

Macklem expects economic growth in the third quarter of 2020, as people are returning to work and households get back to some of their usual activities.

However, he believes the potential short and sharp economic rebound will not last too long.

The uneven reopenings in Canada’s provinces and sectors combined with the unclear course of consumer confidence and unemployment rates will probably lead to long lasting damage for demand and supply, Macklem says.

In his opinion, the current physical distancing rules may lead to less productive workplaces than earlier. In addition to it, certain services will be still too difficult to provide.

Macklem noted that the economy’s productive capacity will be still facing consequences of the damage even when the public health restrictions ease.

“The economic rebound will likely be prolonged and bumpy, and there could be steps back at any moment”, – he said.

According to the Governor, the COVID-19 pandemic has caused an economic shock we’ve never faced before. Large sectors were affected with more than three million people losing their jobs in April.

“When the economy reopens, we’ll see very strong job growth and high demand increasing the spending,” – Macklem added.

“However, not everyone will get their jobs back, and the uncertainty will remain.”

As you know the BoC reacted to the pandemic by cutting its key lending rate to 0.25%, which is the lowest possible level in Macklem’s opinion.

The Bank also started a purchasing program of bonds and government debt to support the markets and make borrowing cheaper.

Such purchases also suggest that the Bank’s overnight rate may remain low for a long time.