Canadian Economy and Covid-19
Response from the Bank of Canada and Canadian Government
Jean-Paul Lam1
January 9, 2022
1 These notes are the property of the author. They are intended for the Winter 2022 Econ 406
class and can only be shared with students registered in the class. You cannot share these notes
with other persons not enrolled in the course or post them online.
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Outline
1. Macro Canadian aggregates since the Covid-19 shock
2. Monetary and fiscal response
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Learning objectives
◮ By the end of the lecture, you will learn about:
1. The impact of Covid-19 on the Canadian economy
2. The response of the Bank of Canada and the Government of Canada to the
Covid-19 shock
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Data
◮ The primary sources of data that I am using in these lectures are from:
1. Statistics Canada: https://www.statcan.gc.ca/eng/start
◮ Statistics Canada has built interactive portals for the main macroeconomic
variables
◮ You can also subscribe to The Daily, which provides a summary of newly release
data https://www150.statcan.gc.ca/n1/dai-quo/sub-abo-eng.htm
◮ Throughout the course, we will also use data from the following sources:
1. Federal Reserve Bank of St-Louis: FRED https://fred.stlouisfed.org/
2. Bureau of Economic Analysis: https://www.bea.gov/
3. OECD data: https://data.oecd.org/
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Data
◮ We will focus on monthly and quarterly data in this course
◮ U.S data is more abundant and more timely than Canada data
◮ This is especially true for high frequency data
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Covid-19 and the Canadian economy
◮ The Covid-19 pandemic forced many sectors of the economy to shut down
and has created an economic shock unlike anything seen in recent memory
◮ In this lecture, we provide a brief overview of the impact of Covid-19 on the
Canadian economy by analyzing some major macro aggregates
◮ The graphs are self-explanatory, and they show the severity of the Covid-19
impact on the Canadian economy
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Canadian Real GDP
GDP (chained 2012 dollars, millions)
2,200,000
2,100,000
2008 financial crisis
2,000,000
1,900,000
1,800,000
Covid-19
1,700,000
1,600,000
1,500,000
1,400,000
2001
2005
2009
2013
2017
2021
Source: Statistics Canada, Table 36-10-0104-01.
◮ Compare the fall in GDP in 2008-2009 with the fall in 2020Q1
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Canadian Real GDP and Final Domestic Expenditure
Quarterly % change, chained (2012) dollars
GDP and Final Domestic Demand
12
8
4
0
-4
-8
-12
2008
2010
2012
2014
2016
2018
2020
Source: Statistics Canada, Table 36-10-0104-01.
Real GDP at market prices
Real final domestic demand
◮ GDP fell by 11.3% in 2020Q2 but rebounded by 9.1% in 2020Q3
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Canadian Real GDP by Industry
Real GDP by Industry
Billions of chained (2012) dollars
2,040
2,000
1,960
1,920
1,880
1,840
1,800
1,760
1,720
1,680
1,640
2016
2017
2018
2019
2020
2021
Source: Stattistics Canada, Table 36-10-0434-01.
◮ Note the important fall in real GDP in 2020M3 and 2020M4 and the rebound
in 2020M6
◮ We are almost back to the same level as 2020M2
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Goods and Service Producing Sector
Goods producing sector
600,000
600,000
580,000
580,000
560,000
560,000
540,000
540,000
520,000
520,000
500,000
500,000
480,000
480,000
460,000
460,000
2016
2017
2018
2019
2020
2021
Service producing sector
1,450,000
1,450,000
1,400,000
1,400,000
1,350,000
1,350,000
1,300,000
1,300,000
1,250,000
1,250,000
1,200,000
1,200,000
1,150,000
1,150,000
2016
2017
2018
2019
2020
2021
◮ Service sector still well below its trend pre-pandemic level
◮ Rotation from goods-consumption to service-consumption still ongoing
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Major Macroeconomic Aggregates, Millions $
Consumption
Investment
1,200,000
500,000
1,100,000
450,000
1,000,000
400,000
900,000
350,000
800,000
300,000
700,000
600,000
250,000
2001
2004
2007
2010
2013
2016
2019
2001
2004
2007
Exports
2010
2013
2016
2019
2016
2019
Imports
700,000
700,000
650,000
600,000
600,000
500,000
550,000
400,000
500,000
450,000
300,000
2001
2004
2007
2010
2013
2016
2019
2001
2004
2007
2010
2013
Source: Statistics Canada, Table 36-10-0104-01.
◮ The fall in consumption after the Covid-19 shock is unprecedented
◮ All major aggregates suffered significant losses after March 2020
◮ Exports remain a major concern for Canada going forward
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Unemployment rate
Unemployment rate
14
13
Percentage
12
11
10
9
8
7
6
5
2016
2017
2018
2019
2020
2021
Source: Statistics Canada, Table 14-10-0287-01
◮ After experiencing record low unemployment at the beginning of 2020,
unemployment spiked to 13.7% during the pandemic
◮ Unemployment in December 2021, only 0.2 p.p higher than February 2020
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Unemployment rate by age and gender (April 2019 v/s
April 2020)
W 55 above
W 25-54
W 15-24
2019
2019
2019
+6.5
2020
2020
2
4
6
8
10
12
14
16
+19.2
+6.7
18
20
22
24
2020
2
26
4
6
8
10
M 55 above
12
14
16
18
20
22
24
26
2
4
6
8
10
M 25-54
2019
12
14
16
18
20
22
24
26
20
22
24
26
M 15-24
2019
2019
+15.1
+5.5
+5.4
2020
2020
2
4
6
8
10
12
14
16
18
20
22
24
26
2020
2
4
6
8
10
12
14
16
18
20
22
24
26
2
4
6
8
10
12
14
16
18
Unemployment rate (percent)
Source: Statistics Canada, Table 14-10-0287-01
◮ Youth unemployment suffered the largest increase among these age groups
◮ Women unemployment rate experienced larger decline than male
unemployment
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Employment rate
Employment rate
Full-time employment
16,000
62
15,500
No of people (x 1,000)
64
60
58
56
54
52
15,000
14,500
14,000
13,500
2016
2017
2018
2019
2020
2021
2016
2017
Part-time employment
2020
2021
2020
2021
Total employment
3,600
No of people (x 1,000)
No of people (x 1,000)
2019
20,000
3,800
3,400
3,200
3,000
2,800
2,600
2,400
2016
2018
19,000
18,000
17,000
16,000
2017
2018
2019
2020
2021
2016
2017
2018
2019
◮ Employment rate in December 2021 was almost back to its pre pandemic
level (-0.3 p.p compared to February 2020)
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Participation rate - 55 and over
41
41
40
40
39
39
38
38
37
37
36
36
35
35
2016
2017
2018
Canada
2019
2020
2021
U.S
◮ The great resignation in the U.S
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Consumer price index - % change over past 12 months
5
4
Percent
3
2
1
0
-1
2016
2017
2018
2019
2020
2021
Source: Statistics Canada and Bank of Canada
Total CPI
CPI trim
CPI median
CPI common
◮ “The Bank continues to expect CPI inflation to remain elevated in the first
half of 2022 and ease back towards 2 percent in the second half of the year.
The Bank is closely watching inflation expectations and labour costs to
ensure that the forces pushing up prices do not become embedded in ongoing
inflation.” BoC Statement, December 8, 2021
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Percent
Inflation - Canada, UK and US
7
7
6
6
5
5
4
4
3
3
2
2
1
1
0
0
-1
-1
2010
2012
2014
Canada
2016
2018
UK
U.S
2020
◮ Inflation in Canada not ”Justinflation”
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Percent
Inflation Expectations - RRB
2.8
2.8
2.4
2.4
2.0
2.0
1.6
1.6
1.2
1.2
0.8
0.8
0.4
0.4
2010
2012
2014
2016
2018
2020
◮ Inflation expectations as measured by the BEIR remains close to 2%
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Survey of Inflation Expectations
◮ Proportion of firms expecting inflation to be above 3% has increased
significantly
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Index of Labour Shortages
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Fiscal policy response since March 2020
◮ Canada Economic Recovery Benefit (CERB) - $500 per week for up to 26
weeks for workers who have stopped working (cost = $81b)
◮ Canada Emergency Wage Subsidy (CEWS) - helps employers that
experienced revenue declines due to COVID-19 cover wages (cost = $50b)
◮ Canada Emergency Business Account (CEBA) - provides interest-free,
partially forgivable loans of up to $60,000 to small businesses (cost = $32b)
◮ Other measures such as CHMC mortgage purchase program, and EI
enhancements were implemented
◮ All of these measures measures totalled around $260 billion (about 12% of
GDP)
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Budget deficit
Millions of dollars
0
-100,000
-200,000
-300,000
-400,000
1971
1977
1983
1989
1995
2001
2007
2013
2019
2025
Source: Fiscal reference tables
◮ Shaded area are forecasts of the level of budget deficits
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Debt to GDP ratio
70
Debt to GDP ratio
60
50
40
30
20
10
1971
1977
1983
1989
1995
2001
2007
2013
2019
2025
Source: Fiscal reference tables
◮ Shaded area are forecasts of the debt to GDP ratio
◮ Back to the 1980s?
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Monetary policy response since 2020
◮ Lowered the overnight rate to 0.25%
◮ Large-scale asset purchases of long-term debt (Quantitative easing)
◮ Enhanced term repo operations and Standing Liquidity Facility (SLF)
◮ What other tools?
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Conclusion
◮ In this lecture, we presented some macro data on the Canadian economy and
how it has fared since the Covid-19 crisis
◮ We also discussed Canada’s fiscal and monetary policy response to the
Covid-19 crisis
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