Fresh lockdowns present new downside risks

The province-wide shutdowns recently announced in Ontario and Quebec raise the downside risks to our near-term forecasts, although the start of the coronavirus vaccination program last week provides a reason to be hopefully about prospects in 2021. The lockdowns are not quite as broad-based as those imposed in the spring, but they still mean that GDP will fall further below its pre-pandemic levels in the worst-affected service sectors. (See Chart 1.) Following the 0.8% m/m drop we have pencilled in for December, GDP is likely to fall again in January, which means first-quarter growth will probably now be negative, rather than zero as our current forecasts assume. The fall will not be anywhere near as large as in the spring, however, and the better news is the authorities have confirmed that enough vaccines should be received in the first quarter to vaccinate the high-risk segments of the population. That means we continue to think that most restrictions will be lifted in the second quarter, allowing economic activity to rebound strongly. (See here.)