Economic Forecast: Strong Recovery Begins in 2021
By Doug PicklykHPAC General COVID-19 economy forecast recession
“It’s not a regular recession, as it was caused by a health crisis, and parts of the economy will come back online quickly.”
We’re in a recession, but according to economist Peter Norman, we’re not headed into a depression. “It’s not a regular recession, as it was caused by a health crisis, and parts of the economy will come back online quickly,” said Norman, vice president and chief economist with Altus Group, who led an hour-long webinar on Wednesday, May 13 hosted jointly by the Canadian Institute of Plumbing and Heating (CIPH) and the Heating, Refrigeration and Air Conditioning Institute of Canada (HRAI).
“By some measures this is among the deepest recessions ever,” said Norman, suggesting the Canadian economy is likely headed for three straight quarters of decline before bouncing back in 2021. He indicated that the societal changes happening now could have lingering effects on housing demand and commercial real estate going forward.
On a global scale, Norman referenced the International Monetary Fund (IMF) April 2020 forecast, which sees the global economy shrinking by about 3% this year, while the pent up demand will lead to a strong 5.8% growth through 2021.
For the Canadian economy, Norman sees something of a similar ‘V-shaped’ recovery, with 2020 ending with 7% drop in GDP and the upswing beginning in 2021 and an overall growth rate of 5% for next year.
Most provinces across the country are expected to return to positive growth in 2021 with the exception of Alberta, which has been hit by the decline in the oil & gas market as well as the pandemic.
For the housing market, early 2020 saw numbers growing and that momentum provided some insulation from the economic shocks, but a number of factors, including rising unemployment and a drop in immigration could lead to a steep decline in housing starts.
Norman anticipates housing starts, which are weak now, rebounding next year but not to the level anticipated prior to the recession.
He suggests renovation spending will also be down this year and will rise next year, but again nowhere near what was anticipated.
In the industrial, commercial and institutional (ICI) construction market, where growth has been steady over the last few years—primarily in the commercial segment—Norman noted that a possible outcome from the health crisis is a shift to more remote workers, leading to a decrease in the demand for office space. He indicated that some 50 million sq. ft. of office space is in the pipeline, and he would not be surprised if we see a pause in commercial development intentions over the next two or three years.
The work from home trend could also effect housing, as people may chose to live outside of city centres if they no longer have to consider a daily commute. That could effect high-rise living.
Retail, hospitality and entertainment segments may have to undergo dramatic changes for social distancing, leading to construction opportunities.
And the COVID-19 crisis has exposed vulnerabilities in seniors housing, where changes will need to be addressed through design and possibly policy changes.
On the bright side, there is hope that by next year as a society we can move beyond social distancing measures as a vaccine is developed and worksites get back to the old normal.
And if and when a second wave of the virus takes hold, our communities will be prepared with better infrastructure in place. Norman suggests that we’ll be able to respond much more quickly, and subsequent waves may not have as much economic impact.