Economy will accelerate as brakes come off

Retail spending expected to soar as consumers “let loose after spending a year in COVID prison,” BMO analysts say

By
Western Investor
January 5, 2021





Holiday shoppers at Metropolis, Burnaby, B.C.’s biggest mall. | Metropolis at Metrotown
— Holiday shoppers at Metropolis, Burnaby, B.C.’s biggest mall. | Metropolis at Metrotown

The Boxing Day sales might be over but it looks like Canadians will be ready to keep the economy chugging along well into the new year, according to forecasts from BMO.

“British Columbia continues to look like an outperformer," senior economist Robert Kavcic wrote in a January 4 note.

The province’s real GDP is pegged to expand 5.6 per cent year-over-year over the course of 2021 — the highest among all provinces and above the national average of 5 per cent growth.

The 5 per cent projection for Canada would be the highest rate of expansion for the country since 2000.

The B.C. government, typically much more cautious in projections than private sector economists pegs the province’s growth at 3 per cent for 2021.

Unemployment on the West Coast is also expected to be the lowest in Canada by the end of the year, running at 6.5 per cent.

BMO pegs this year’s national unemployment rate at 7.5 per cent, while other big provinces such as Ontario (7.5 per cent), Quebec (7 per cent) and Alberta (9.1 per cent) are all expected to lag behind the West Coast.

Economic growth will get off to a slow start, however, as first-quarter growth “will likely slow to a crawl” nationally during the colder winter months before bouncing back with 8 per cent annualized growth in the second quarter.

The Canadian economy managed to expand 5 per cent (annualized) in the fourth quarter of 2020.

“Major downside risks include a possible glitch in vaccine rollout [say, due to safety concerns], a more adverse mutation of the virus and the unwinding of fiscal stimulus later this year. One threat we probably won’t need to worry about is a spike in inflation [and interest rates] given the dynamic duo of lofty unemployment and advanced automation. More likely is a correction in asset prices if they run too far ahead of fundamentals, which could slow spending,” senior BMO economist Sal Guatieri wrote in a separate note.

“Unlike last year, however, there is more upside for the economy. A smoother rollout of vaccines could lead to early herd immunity. As well, flush with savings, consumers could ‘let loose’ after spending a year in COVID prison.”

Guatieri said that with diminished desire to travel or even dine out, Canadians are now buying more goods “with anything tied to homes or recreation flying off the shelves.”

“Although some hard-hit service industries will struggle until most of the population is inoculated (likely in the summer), the goods-producing sector will continue to expand. Record home sales are bound to simmer down, but residential construction should stay aloft given record-low resale availability,” he stated, referring to national trends.

BMO also anticipates the loonie strengthening to $1.25 (US$0.80) vs. the greenback by late 2021. 

“This is near purchasing power parity, limiting its impact on the economic recovery though keeping the trade deficit large. The loonie should benefit from firmer resource prices … as global demand improves,” Guatieri said.


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