During his presentation at GIC LIVE @ HOME, Mark Petrie, equity research analyst with CIBC World Markets shared his “tale of two recoveries.”
Though the Canadian economy was hit extraordinarily hard through the course of the COVID-19 pandemic–particularly in April when the annualized GDP dropped nearly 17%–two thirds of the economy has “almost entirely recovered,” said Petrie.
The remaining third is on a very slow road to recovery, with tremendous ground to make up to reach pre-pandemic levels, he said. “The economic impacts of what has occurred as a result of the pandemic is simply remarkable. There’s been a big recovery but there’s still a huge amount of recovery still to go,” said Petrie.
What’s unique to today’s economic climate, when compared to the recession in the early 1990s and the financial crisis of 2008-2009, is that the vast majority of job losses have been in low paying jobs–80% versus 50%–which has clear ramifications in how the economy is performing, said Petrie.
And yet, consumer spending is more impacted among high income households. In fact, approximately 70% of the reduction in consumer spending has come from high-income consumers, said Petrie.
“In many respects that’s kind of paradoxical because you wouldn’t expect to see such a reduction in spending from people whose job situations haven’t necessarily been affected in nearly the same way,” he said, “but the reality is it isn’t simply about the job picture that has been affecting consumers spending.”
There has been a dramatic decline in non-business travel, for instance. From March to September, approximately “$20 billion of consumer spending has come out of the personal travel industry,” said Petrie. Canadians are spending less and saving more, with the household savings rate hitting 25% in the second quarter, he said. This implies there’s a “substantial amount of money on the sidelines that could reenter the economy at any given point.”
And though some of the money has reentered the economy, it hasn’t shifted yet in a meaningful way, said Petrie. The damage to the economy is severe and more government stimulus is needed to help the most vulnerable Canadians.