OTTAWA (Reuters) – A second wave of COVID-19 and another round of sweeping lockdowns could have a “very serious” impact on the Canadian economy and must be avoided, Bank of Canada Deputy Governor Lawrence Schembri said on Thursday.
Schembri, taking questions from a business audience, said employment and spending had dropped sharply since mid-March when “a fairly broad-based lockdown” was imposed.
Canadian officials shuttered most non-essential businesses and urged people to stay home to slow the spread of the coronavirus. In recent weeks, most regions have gradually started to reopen.
“If a second wave was relatively severe as the first wave was … I think that could … have another very serious impact on the Canadian economy,” Schembri said. “We need to avoid that happening again.”
Earlier, Schembri said Canada’s central bank expected the economic recovery to have two phases and be prolonged and uneven, with a relatively quick reopening and then a longer recuperation, which will vary by region.
Households, the bank said, would remain cautious with their spending until a coronavirus vaccine is available.
“The uncertainty around this recuperation stage is extraordinary and points toward a recovery that will be gradual and long-lasting as this uncertainty slowly dissipates,” he said.
“Cautious spending behavior on the part of households will likely continue until a vaccine becomes available.”
Bank of Canada Governor Tiff Macklem said on Tuesday the bank remained focused on using its policy tools to support Canada’s economic recovery. The bank slashed its key interest rate three times in March to a record-low 0.25%.
Mortgage and other credit deferrals have helped keep Canadians from seeking additional loans, Schembri said, adding people could fall behind on payments if incomes do not recover when deferrals end.
The Canadian dollar <CAD=> maintained its earlier decline, down 0.3% at 1.3610 to the greenback, or 73.48 U.S. cents.
(Reporting by Julie Gordon and Kelsey Johnson; Additional reporting by Fergal Smith in Toronto; Editing by Marguerita Choy and Peter Cooney)