Four months in, experts still can’t agree on duration of COVID-19 recovery

by Ephraim Vecina on 22 Jul 2020

The Canadian mortgage market will likely become a significantly different space – especially in terms of defaults – once the COVID-19 pandemic passes, according to the Bank of Canada.

Mikael Khan, director of financial stability at the BoC, said that the magnitude of the coronavirus financial crisis can be likened to that seen during the previous decade’s financial downturn.

The prolonged recession after the 2008-09 crisis was brought about by “an underlying fragility in the global financial system,” Khan told The Canadian Press. “One thing that’s always very important when you’re facing a large negative shock is the initial conditions.”

To compare, the years leading up to the coronavirus outbreak were characterized by sustained growth in demand and activity in Canadian markets, particularly in the housing and mortgage segments.

Khan said that programs such as federal financial aid and mortgage payment postponements will also give Canadians some much-needed leeway for recovery, and might even give them a head start once the current crisis subsides.

In a recent report, Capital Economics made a more sobering prediction: Mounting household and business debt will delay the recovery of the Canadian economy by as much as 10 years.

“High private-sector (business and consumer) debt is likely to hold back productivity growth in the coming decade relative to that in the US,” said Stephen Brown, senior Canada economist at Capital Economics.

Capital Economics projected that year-end GDP might end up 6.3% weaker than pre-pandemic levels.

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