After a Cruel April, Are Things Looking Up for the Economy?

Pretty much any way you look at it, April took an unprecedented toll on the economy, as a result of measures to contain the spread of COVID-19 and the sharp decline of oil prices. While it's too early to say unequivocally that April will mark the worst month yet from an economic-perspective, RBC Economics says there are some positive signs for May.

"It looks increasingly likely that overall economic activity will begin to tick higher again already in May," says the latest Macroeconomic Outlook report from RBC Economics.

Positive signs highlighted in the report include a stabilization or decline in all provinces of COVID-19 infections, leading to some plans for reopening parts of the economy. Looking at businesses in particular, there are indications some are adapting to a contact-less model, with business confidence nudging higher near the end of April.

Still, RBC Economics notes, "the reopening of the economy will be slow and uneven and our forecast assumes that even if the economy returns to a more normal level of activity in 2021, it will probably take an additional year before the economy gets back to its pre-COVID-19 trend." It expects the first stage of reopening will see a bounce in retail and wholesale trade, "although neither is forecast to get back to pre-crisis levels this year." The report says increased demand for goods will be positive for manufacturers and agriculture, while demand for locally grown food may also result in the creation of different supply chains.

Another positive? "Canada's dollar is holding up surprising well in the face of the sharp drop in commodity prices, in particular oil," the report says. However, it adds that the Canadian dollar could come under some pressure as economies come back on line, particularly if oil prices remain low.

While RBC Economics says the second quarter will still mark the largest drop in output on record, "the easing in restrictions and resumption of some economic and social activity tees up for a bounce in the second half of the year."

For more, including GDP, labour-market and Bank of Canada rate predictions, check out the full Macroeconomic Outlook report for May.