No quick recovery in sight, CIBC economists say

“Any wishful thinking about things going back to normal by the summer have all but vanished,” the report said.

Instead, CIBC expects that between now and July, “the infection curve will flatten. Social distancing will do the trick.” But this won’t set the stage for a rapid rebound.

“After months of living the way that we all live now, it is natural to expect the desire to go back to normal as soon as possible. As a society, we should resist that temptation,” CIBC said, warning that a premature resumption of normal life would open the door to potential greater damage as the virus re-emerges.

Rather than a quick return to normal, CIBC expects that activity will resume gradually. Manufacturing and construction activity will increase, but at notably lower levels than before the pandemic, it said. Retail stores will re-open, but amid strict social distancing procedures.

“Large gatherings won’t be allowed, suggesting no sporting events, concerts or conferences,” CIBC said.

“Given that picture, it’s reasonable to assume that after falling by 28% in the second quarter, economic growth will return to positive territory in the third quarter, but a V-shaped recovery is simply not in the cards,” the report said.

CIBC projected that GDP growth will rise by about 17% in the third quarter and household spending will grow by around 10% as stores reopen “and pent-up demand is released.”

In this environment, there will be highly variable effects on the labour market, the report said.

Approximately 20% of workers are in essential jobs that will be in high demand during the early stages of the recovery, CIBC said, including healthcare workers, utilities, postal and delivery services, agriculture and grocery store workers.

“That group will be a net job creator during that period, and as we have seen in any past pandemics, their bargaining power will rise notably during that period,” CIBC said.

Public sector employees, such as teachers, and other government workers will face a minimal impact.

“With a few exceptions, we do not expect governments, at any level, to reduce employment,” CIBC said.

Most office workers (46%), including jobs in finance, insurance and management, are likely to see some negative effects on employment.

“While we expect some job loss here, the main impact will be on compensation and reduced hours as job sharing will be implemented in some cases,” CIBC said.

The construction and manufacturing sectors, along with real estate, rental and leasing services, fall into the category of businesses that will face reduced capacity and productivity during the initial recovery.

The workers facing the toughest outlook are in sectors that are being hit hardest, where many businesses may not survive, including personal services (such as laundry and hairdressers), elective retail (such as sporting goods, clothing and electronics) and parts of the energy sector.

“The workers that are most at risk in not regaining employment are those in travel and accommodation, sports and entertainment and the restaurant industry,” CIBC said, noting that this amounts to almost 5% of workers.

More than half of restaurants have closed temporarily. “One in 10 have already closed permanently, and one in five are expected to close permanently within the next month,” CIBC said.

While government support measures might help somewhat, “we expect a very slow recovery” in the restaurant sector, CIBC said.

“Accordingly, while we see some rebound in overall economic activity, we might see a slower reaction in the improvement in the unemployment rate, which we expect to remain elevated in the third quarter, reflecting continued difficulties in the vulnerable segment, as well as some job loss in sectors such as construction and manufacturing, due to reduced capacity,” the report said.