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JPMorgan Slashes Canadian Growth Forecast on ‘Uneven’ Reopening

JPMorgan Slashes Canadian Growth Forecast on ‘Uneven’ Reopening

(Bloomberg) -- JPMorgan Chase & Co. cut its forecast for Canadian economic growth because of gradual and uncoordinated efforts across provinces to reopen.

The country’s real gross domestic product will shrink by 45% annualized in the second-quarter, more than an earlier forecast of 30%, Silvana Dimino, an economist at JPMorgan, wrote Tuesday in a note to clients. The bank also reduced its full-year 2020 call to a 9% contraction, from 7%, even after predicting higher average growth in the second half.

The revised forecast is “largely owing to the slower and uneven easing of COVID-19 pandemic restrictions across the provinces,” particularly Ontario and Quebec, which account for more than 50% of GDP,” Dimino wrote. “We still assume that April will be the weakest month of the quarter, but we now see higher risks that the economic recovery phase will be more drawn out.”

Canada’s two largest provinces are responsible for a majority of the country’s Covid-19 cases and both governments have announced a gradual, phased-in lifting of pandemic restrictions, and the delay signals “more lasting damage” to output, Dimino said. The collapse in oil prices will also weigh on business investment, causing “vast” spending cuts in the energy sector in the second quarter and through the end of the year.

“We now believe the economy will not return to more normal operating conditions until the very end of 2Q,” Dimino wrote.

The provinces, like the various U.S. states, have differing approaches to reopening the economy. On the more lenient side is Manitoba, which in early May started allowing some services like hair salons, malls and dentists to reopen. Ontario is on the more strict side, with only some stores like hardware and gardening retailers allowed to open.

While reopening the economy is in the hands of each province, the federal government has used cautious messaging. Prime Minister Justin Trudeau said Saturday the country isn’t in the recovery or restarting phrase yet and will instead focus on supporting Canadians.

The federal government has implemented a series of programs to provide funding to those hurt by the outbreak such as businesses, workers, students and the elderly. Since mid-March the government has been adjusting its programs and adding news one as needed.

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