Fourth wave could delay recovery

GDP is on track to return to its pre-pandemic level this month but, with the number of coronavirus infections now picking up, there is a growing risk that the recoveries in some sectors go into reverse. Admittedly, the progress on vaccinations means that the authorities probably won’t re-impose blanket restrictions during the fourth wave. But it is surely no coincidence that those provinces that have followed the most accelerated re-openings, such as Alberta and British Columbia, have also experienced the fastest resurgences of the virus. At the very least, this suggests that other provincial governments will be slow to ease their remaining restrictions, with Ontario already announcing that its re-opening plan has been paused. And even if restrictions are not reimposed, the increased prevalence of the virus could keep consumers at home, and therefore weigh on activity in the high-contact service sectors. Strong gains in GDP in July and August should still drive third-quarter GDP growth of close to 6% annualised, but the worsening fourth wave presents a downside risk to our forecast that fourth-quarter growth will be 5%.