As we head into the winter months and the end of 2020, it seems clear this year will go down in the popular imagination as one of the worst in modern times, thanks to the COVID-19 pandemic.
The predicted second wave of infections is here and unfortunately, it’s not only hurting the health of many people but forcing partial lockdowns that are restricting our ability to socialize, enjoy entertainment and practise our favorite activities.
On the economic front, the COVID recession has led to immense hardship for Canadians who have lost their jobs and businesses. It’s been a stressful time as reflected in worrisome indications of an increasing prevalence of mental health problems.
However, while there’s no shortage of reasons to be pessimistic, there is also a danger of losing sight of the true dimensions of the problem and the many reasons to be positive about the future.
Certainly, the U.S. stock market saw grounds for optimism this week, hitting a record high in response to promising data on a leading COVID vaccine candidate from pharmaceutical giant Pfizer, and the election of Joe Biden as U.S. president.
And, when you lift the hood on the economy, you might be surprised by the hopeful signs you find, at least relative to the dark days of last spring. Even back then, people may have gotten a distorted view of how grim the situation was by the way economic data is presented.
To be sure, the near total shutdown on the economy was a devasting blow, but the widely reported 38.7% decline in second quarter GDP is an annualized figure, meaning that would be the decline if the pace of losses kept up for a full year.
According to Statistics Canada, the actual decline from the first to the second quarter was minus 11.5%. Now, that is still historically bad, but it doesn’t suggest to the casual observer that more than one-third of Canada’s economic output had been wiped out, as the annualized figure does.
What’s more, the summer brought a robust recovery. Third-quarter growth is currently estimated to have been 10.3% higher than the second quarter, or 47.8% annualized. As you can see again, annualizing one quarter of data creates a much more sensational headline!
Economists expect the pace of the recovery to slow down with the introduction of lockdowns in response to the second COVID wave. And it’s important to remember the recovery is being fuelled by generous government relief programs.
Still, GDP has reached 96% of its pre-pandemic peak and employment has recovered to 97% of its February level, which is better than the U.S.’s rebound at 93%. Indeed, Canada has done a good job of controlling the pandemic compared to the U.S. and major European countries, despite some tragic missteps, like what occurred in Quebec’s nursing homes.
The real estate market and retail sales have been surprisingly strong, buoyed by high levels of disposable income, in part due to those government relief programs. On the other side of the coin, some sectors continue to struggle, including accommodation and food services, and arts, entertainment and recreation.
We’re still in a difficult situation and, of course, we don’t know what the future holds. But it’s important to keep a balanced view and a tight rein on our emotions. Giving into undue pessimism has led many people to make rash decisions, including abandoning their financial plan, to their lasting regret.
Even in the worst of years, we have much to be grateful for here in Canada, and that’s good to focus on while we wait for better times.