April was a month of extremes. Survey data suggest economic activity contracted at an unprecedented rate as many economies were partially locked down in an effort to contain the COVID-19 pandemic. Canada and the US saw their worst job losses on record and millions of Europeans have only avoided unemployment by having their wages covered by the state. A sharp decline in oil demand pushed prices to multi-decade lows and WTI even temporarily fell below zero as commodity traders tried to get out of expiring crude contracts. Central banks expanded their balance sheets to record levels, buying up government bonds and extending liquidity to the financial system. Worries about the potential inflationary consequences had investors clambering for gold, but government borrowing costs remained low even as fiscal authorities continued to roll out extraordinary aid to households and businesses.

The good news: economically-damaging containment efforts helped ‘flatten the curve’ globally, and even countries suffering the most severe outbreaks have seen growth in new infections slow substantially. Governments are starting (or planning) to gradually ease restrictions and re-open their economies. The prospect of a rebound in economic activity over the second half of the year, along with bold action by policymakers, helped equity markets recover from March’s multi-year lows. The S&P 500 rose by 12.7% in April, marking the third-strongest monthly increase on record. But the path back to normalcy is likely to be slow and uneven. Re-opening plans will have to be flexible, easing or tightening restrictions based on infection rates that won’t move in one direction. That will mean more choppiness in equity markets (volatility is down from March’s highs but still historically elevated) as highly uncertain forecasts for economic growth and corporate earnings are revised. The IMF’s latest forecast predicts global GDP will shrink by 3% this year—far worse than during the 2008-09 financial crisis—and 6% in advanced economies. And still, “risks of a worse outcome predominate.”


  • Despite only ramping up late in the quarter, efforts to slow the spread of COVID-19 weighed heavily on Q1 GDP in the economies we track. Survey data point to further declines in April when containment measures were in place for the entire month.
  • With growth in coronavirus cases slowing, many countries are beginning (or planning) to re-open their economies. The process will be gradual though and our forecast assumes only a partial recovery in economic activity over the second half of the year.
  • The industry make-up of individual economies will also influence their recovery—Canada has been dealt a double blow due to its reliance on the energy sector. Even after coronavirus containment measures are lifted, the effects of the current oil price shock are likely to linger for years.
  • After lowering interest rates, expanding QE, and announcing new lending programs in March, policymakers pledged to do more if needed—and some followed through on that commitment in April. The Fed announced a number of new liquidity facilities while the BoC expanded its QE program to include provincial and corporate debt.
  • Lower oil prices are pushing headline inflation sharply lower, and we expect core inflation will remain below target throughout next year amid soft demand conditions. Some are concerned about upside risks to inflation amid central bank balance sheet expansion, but past QE programs haven’t been inflationary.


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Josh Nye is a senior economist at RBC. His focus is on macroeconomic outlook and monetary policy in Canada and the United States. His comments on economic data and policy developments provide valuable insights to clients and colleagues, and are often featured in the media.

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