With much of the world facing a second wave of Covid-19, the economic recovery is slowing. But an accelerated rebound is visible at the end of the tunnel, states a new report from CIBC Capital Markets on Wednesday.
Rising Covid-19 cases and easing government support mean “the North American economy will be in for a long, hard winter,” wrote author Andrew Grantham, CIBC senior economist.
Despite the bleak sentiment, he offered investors evidence that this recession will eventually result in a quick recovery relative to typical recessions.
For example, U.S. job losses have been concentrated in certain sectors, resulting in a relatively weak multiplier effect for the economy.
During the pandemic, the 15 worst sectors have made up more than half the decline in U.S. jobs since February, Grantham wrote.
In contrast, during the 2008–09 financial crisis, the hardest hit sectors constituted only one-third of total job losses in the U.S.
“The concentrated nature of the missing jobs gives hope for a rapid rebound when Covid is fully behind us,” Grantham said.
Another positive factor is that government support has resulted in fewer business bankruptcies stateside relative to 2019.
If that support continues in the form of a new U.S. fiscal package, “greater linkages will remain between employers and employees,” Grantham said. The result would be fewer permanent job losses.
Data also show that job openings have rebounded to their pre-pandemic level, as new business formations surge and demand increases for some products and services during the pandemic.
Further, those who have been unemployed for long periods have seen a slightly greater probability of re-employment than prior to the pandemic — a situation that is far from typical during a recession.
Such evidence has CIBC forecasting that the U.S. unemployment rate could fall quickly enough to warrant a rate hike from the Federal Reserve in 2023.
The Bank of Canada would likely follow suit, Grantham said.
He made clear, however, that the forecast depends on a vaccine being widely available by mid-2021, as well as U.S. fiscal stimulus being implemented by Q1.
“Assuming we get both, there should be some better than expected news for the U.S., and by extension Canada, if we look past a gloomy winter,” Grantham said.
For full details, read the CIBC Economics report.