Canadian Credit Union Association

Finance Minister Releases Economic Snapshot

On Wednesday July 8, the Minister of Finance, Bill Morneau, presented an “Economic Snapshot” detailing federal spending and economic projections linked to the government’s response to the COVID-19 pandemic to date. The complete report can be found here.

The Snapshot provides the best prediction of the state of the economy until the end of the fiscal year (March 31, 2021). It was noted that there may be further outbreaks and therefore accurate forecasting is challenging.
CCUA will continue to monitor, analyze and report on changes to government support programs and advocate for credit unions as the government turns its focus to recovery.

Some highlights from the Snapshot:

Economic Indicators

  • Unemployment has gone from historic lows in January (5.5%) to historic highs in May (13.7%). Between February and April, 5.5 million Canadians either lost their jobs or saw their work hours significantly reduced.
  • Employment losses between February and May were largest in accommodation and food services (44%) and information, culture and recreation (22%). Other industries with notable losses include wholesale and retail trade (15%), manufacturing (10%) and construction (10%). Agriculture saw employment gains of 6%.
  • The deficit for 2020-21 is expected to rise to $343.2 billion from the $34.4 billion deficit projected before the pandemic, a large proportion of which can be attributed to the $212 billion in direct support measures the federal government is providing.
  • Aside from the pandemic program spending, the economic slowdown is estimated to have added another $81.3 billion to the deficit in 2020-21.
  • The Canadian economy is projected to shrink by 6.8% this year before bouncing back by 5.5% next year, making this crisis the worst economic contraction since the Great Depression. If there is a significant second wave, the GDP could contract by as much as 11%.
  • The GDP is expected to decline by 40.6%, with the decline expected in the second quarter of this fiscal year.
  • The federal debt-to-GDP ratio is expected to rise from 31% in 2019-20 to 49% in 2020-21. Despite this increase in debt, the government anticipates it will save over $4 billion in debt servicing charges as a result of very low interest rates.
  • Without government programs, it is predicted the GDP would have contracted by more than 10% and unemployment would have risen by an additional 2%.

Housing Market

  • According to a recent survey by the Angus-Reid Institute, 30% of those surveyed in March initially expressed concern over their ability to pay rent or their mortgage. In May, the data showed that this concern had not materialized for the vast majority of Canadians, with 6% having been unable to pay these monthly bills during this period.
  • According to the Canadian Bankers Association (CBA), as of June 24, more than 743,000 Canadians have received mortgage deferrals or skip a payment from Canadian banks, which represents about 15% of the number of mortgages in bank portfolios.
  • Home sales and listings have also seen a partial bounce back in recent weeks. Mortgage payment deferrals and income support measures, have helped avoid a rise in distressed sales, keeping house prices relatively stable so far, and prevented longer term damage to the economy.

Impact of Government Support Programs

Canada Emergency Business Account (CEBA)/ Business Credit Availability Program (BCAP)

  • Credit unions were specifically mentioned as offering CEBA
  • As of July 3, 688,000 applicants have been approved for roughly $27.41 billion in CEBA loans — $7 billion of which is forgivable if the loan is paid back before December 31, 2022. The cost of the program is expected to rise to $13.7 billion by the time it ends.
  • Over 65% of the businesses eligible based on the payroll criteria have benefited from the CEBA program based on the initial set of eligibility criteria through early June.
  • Through the BCAP, as of July 3, 148 guarantees have been confirmed for a total loan value of over $303.59 million. Based on the experience with similar products made available during the 2008-2009 financial crisis, uptake of these programs is expected to grow steadily over time.

Canada Emergency Wage Subsidy (CEWS)

  • The total estimated impact of the Canada emergency wage subsidy is estimated to be $82.3 billion. That is an increase from the $45 billion estimate provided by the government last month and reflects the proposed extension and broadening of eligibility for the program. Details of the extension and broadening have not yet been announced.

Canada Emergency Response Benefit (CERB)

  • As of June 28, the CERB has provided over $53 billion in benefit payments to 8.16 million Canadians. That amount is expected to rise to $80 billion based on the eight-week extension and significant take-up of the program. 

Canada Emergency Student Benefit (CESB)

  • To date, it has provided over $1.4 billion to over 600,000 applicants, which is expected to rise to $5.2 billion by the time it winds down.

Next Steps

  • Until a vaccine or effective treatment for COVID-19 is found, the pace and trajectory of economic recovery will largely depend on Canada’s prolonged ability to contain the spread of the virus and limit resurgence.
  • Government has identified women, parents, seniors, low-wage workers, youth, racialized communities and very recent immigrants as being at risk of being disproportionately affected by economic impacts of COVID-19. It is expected targeted supports for these groups will be included in any forthcoming recovery plans.
  • Government will continue to fine tune support programs with an eye to preventing/remedying fraud and incentivizing Canadians to return to work. 
  • It has been indicated that the government is interested in exploring supporting the green economy.
  • There will be a $50 billion increase in the Wage Subsidy program, but no details on changes to the program at this time.
  • There will be $10 billion increase in the Employment Insurance program but no details on changes to the program at this time.
  • As announced by the Prime Minister on June 5, the government will invest approximately $14 billion to support provinces and territories targeted to the areas of: health and long-term care, personal protective equipment, supports for vulnerable groups, childcare, sick leave and support for municipalities.
  • The government is taking a prudent approach to financing the deficit by significantly increasing long-term bonds to lock in funding at historically low interest rates. This will ensure Canada’s debt remains affordable and sustainable for future generations and less vulnerable to increases in interest rates.
  • The government is supposed to release a recovery plan in the fall, and it has been speculated the government may produce a fall budget.