Forecasting growth amid Covid’s fourth wave

By Michelle Schriver | August 17, 2021 | Last updated on December 19, 2023
3 min read
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Third-wave Covid-19 restrictions are barely in the rear-view mirror, yet investors are weighing whether a fourth wave — fuelled by the Delta variant — will strike another economic blow.

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“There’s no doubt that the threat of Delta is going to cause a little bit of a disruption to the path of economic recovery,” said Avery Shenfeld, chief economist at CIBC, in a recent interview.

That disruption has been reflected in lower bond yields in recent weeks, as well as setbacks in consumer spending.

“We’ve seen some [U.S.] airlines, in fact, report that bookings have slowed a bit as of mid-August — a sign that perhaps there’s a little more caution among Americans, and in fact in Europe as well, in terms of people deciding how much they’re willing to get out there in the economy,” Shenfeld said.

A surge in Covid-19 cases in the U.S. weighed on spending in July, with U.S. retail sales falling 1.1% in the month — larger than the 0.3% decline expected by analysts.

Still, “it’s too early to get too pessimistic on how big an economic impact Delta will have,” Shenfeld said.

Countries with high vaccination rates and spikes in cases, such as the U.K. and the Netherlands, haven’t seen a material increase in deaths, Shenfeld noted. With vaccinations limiting case severity, consumers may be confident to resume spending activities. “That’s particularly going to be a benefit to Canada where the vaccination rate is quite high,” he said.

Further, governments, businesses and people will proactively mitigate economic damage during the fourth wave, Shenfeld suggested. Jurisdictions such as New York City and Quebec are mandating vaccines for certain indoor activities, and some businesses and educational institutions are following suit.

Those mandates may result in sustained economic reopenings and encourage even more people to get vaccinated, providing a “payoff down the road,” Shenfeld said.

Pandemic modelling by the Canadian Institute of Actuaries suggests 90% of the population needs to be vaccinated to lessen the risk of a fourth wave.

As things stand, Shenfeld’s near-term economic outlook for Canada calls for strong growth in the third quarter — a quarter he described in a weekly economics report as looking like “an economic barnburner” as consumer activity increases.

RBC’s growth forecasts, updated last week, estimate third-quarter GDP of 8%, which follows subdued growth estimated at 2.5% in the second quarter. The Q3 acceleration is based on a jump in jobs and hours worked this summer plus stronger spending.

A weaker fourth quarter may follow depending on the fourth wave of Covid-19. RBC forecasts GDP of 6% in Q4.

Beyond 2021, Shenfeld is optimistic: “We still see the economy over the next six quarters performing quite well,” he said. “Therefore, we think that capital markets will not end up being that threatened by Delta.”

As a result, equities may see further upside over time and bond yields may drift upward, “as the market realizes that the dawn of Delta isn’t necessarily the end of the recovery path for the global economy,” Shenfeld said.

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Michelle Schriver

Michelle is’s managing editor. She has worked with the team since 2015 and been recognized by the National Magazine Awards and SABEW for her reporting. Email her at