Businesses began to reopen, and stock markets rebounded. But does COVID-19 still pose a risk to the global economy?
Highlights
The reopening of the economy has begun in the past month internationally. However, businesses and jobs had already felt the impact of the disruption caused by the containment measures.
Shares on the stock market, for their part, have recently enjoyed a rise.
Interest rates around the globe have remained low.
Dealing with an unprecedented crisis
In the first quarter* of 2020, COVID-19 forced governments to shut down their economies to protect the health of their citizens. Among these measures were “planned shutdowns” of the economy aimed at containing the spread of the virus.
In the second quarter, governments tried to balance containment measures and the reopening of the global economy.
(*The first quarter refers to January, February and March. The second quarter relates to April, May and June.)
After weeks marked by restricted economic activity and the immobilization of the population invited to remain cloistered, governments have gradually lifted the restrictions put in place. However, when the number of COVID-19 cases started to climb again in some areas, these restrictions had to be reinstituted.
Although the reopening of the economy raised optimism about a recovery in global financial markets, many challenges remained. As the economies had come to a standstill, many businesses lost business or had to close during the quarter. This has led to rising unemployment figures around the world.
To respond to this situation, governments have provided financial assistance to businesses and individuals. In many countries, the slowdown in economic activity and the weakness of the oil market had negative repercussions on inflation (rise in the price of goods and services).
Stock market recovery and oil price rebound
The world’s major equity markets posted gains buoyed by investors’ hopes of an imminent economic recovery during this period. Many believed that the actions were taken by governments and central banks – including lowering interest rates – would encourage the economy to recover.
In April, the oil price plummeted due to increased supply and weak demand due to production shutdowns. However, the cost of oil recovered somewhat to end the second quarter in better shape, due to the reduction in production coming from the Organization of the Petroleum Exporting Countries (OPEC).
Moreover, the reopening of economies has also fueled the oil demand. The consensus also wanted people to be more ready to get back behind the wheel or travel by air.
The U.S. information technology sector grew in the quarter as many companies took advantage of people working from home.
A dose of optimism for the Canadian economy?
Canada’s economy experienced a significant slowdown in the first quarter. Economic activity, including business investment, has slowed due to the pandemic. In addition, household spending fell rapidly. As the Canadian economy is heavily dependent on the energy sector, low oil prices did nothing to help.
In light of this economic slowdown, the Bank of Canada (BoC) reduced its key rate from 1.75% to 0.25%. A rate that is maintained throughout the second quarter.
However, at its last meeting in the second quarter on its monetary policies, the BoC showed a particular positive bias, suggesting that the Canadian economy could return to growth in the third quarter* of 2020.
(*The third quarter refers to July, August and September.)
The country’s inflation rate eased in the second quarter due to lower consumer prices in April as the majority of the confined population cut spending and businesses closed.
The economy has lost a large number of jobs due to the pandemic. The unemployment rate has reached its highest level since 1976. Note, however, that with the arrival of reopening measures in May, the number of jobs in Canada has increased slightly.
Economic outlook: what might the future look like?
Economies are reopening again, and investors seem more optimistic. The fact remains that COVID-19 represents all.
