What will the economy look like in the aftermath of the coronavirus shock? That question was considered in a CIBC report published on Friday.

Investors must consider the longer-term issues, the report said: “It’s not this year’s earnings that matter, but the discounted value of the stream ahead.”

The report analyzed past economic shocks and found that bear markets tied to downturns don’t reverse quickly, because earnings don’t, either.

“Higher insolvency risks have to be priced in for 2020,” it said, and “markets will also reassess how much of that will be recouped in 2021.”

Just as the road back to corporate profitability could be a long one, spreads in the bond market are unlikely to revert to where they were before the pandemic.

Still, measures by governments and central banks have eased spread pressures, the report said, and a further narrowing of spreads is likely once the pandemic wanes.

The GDP challenge

Even after typical shocks, economies often struggle to return to the level of real GDP that their prior growth trends implied, the report said.

For example, the Great Recession left a permanent gap in real GDP for Canada and the U.S. versus the 2001–2007 growth trend. The gap was attributable to such factors as aging workers but also a post-recession drop in productivity.

Based on that gap, CIBC forecasted fourth-quarter real GDP in 2021 to be about 2% less for both Canada and the U.S. compared to its forecast before the virus hit.

For more details on what weighs on the economic recovery, including the effects for real estate, labour markets, supply chains and more, read the full CIBC report.