Skip to main content
The Globe and Mail
Support Quality Journalism.
The Globe and Mail
First Access to Latest
Investment News
Collection of curated
e-books and guides
Inform your decisions via
Globe Investor Tools
per week
for first 24 weeks

Enjoy unlimited digital access
Enjoy Unlimited Digital Access
Get full access to
Just $1.99per week for the first 24weeks
Just $1.99per week for the first 24weeks
var select={root:".js-sub-pencil",control:".js-sub-pencil-control",open:"o-sub-pencil--open",closed:"o-sub-pencil--closed"},dom={},allowExpand=!0;function pencilInit(o){var e=arguments.length>1&&void 0!==arguments[1]&&arguments[1];select.root=o,dom.root=document.querySelector(select.root),dom.root&&(dom.control=document.querySelector(select.control),dom.control.addEventListener("click",onToggleClicked),setPanelState(e),window.addEventListener("scroll",onWindowScroll),dom.root.removeAttribute("hidden"))}function isPanelOpen(){return dom.root.classList.contains(}function setPanelState(o){dom.root.classList[o?"add":"remove"](,dom.root.classList[o?"remove":"add"](select.closed),dom.control.setAttribute("aria-expanded",o)}function onToggleClicked(){var l=!isPanelOpen();setPanelState(l)}function onWindowScroll(){window.requestAnimationFrame(function() {var l=isPanelOpen(),n=0===(document.body.scrollTop||document.documentElement.scrollTop);n||l||!allowExpand?n&&l&&(allowExpand=!0,setPanelState(!1)):(allowExpand=!1,setPanelState(!0))});}pencilInit(".js-sub-pencil",!1); // via darwin-bg var slideIndex = 0; carousel(); function carousel() { var i; var x = document.getElementsByClassName("subs_valueprop"); for (i = 0; i < x.length; i++) { x[i].style.display = "none"; } slideIndex++; if (slideIndex> x.length) { slideIndex = 1; } x[slideIndex - 1].style.display = "block"; setTimeout(carousel, 2500); } //

The Bank of Canada is framed in an iron rail in Ottawa on Dec. 15, 2020.

Sean Kilpatrick/The Canadian Press

Along with much of the world, Canada’s economy has suffered from the COVID-19 pandemic and other events in 2020, notably the shock to global oil markets. How badly? An examination of the immediate data and longer trends indicates significant damage, with a lengthy recovery period ahead.

Let’s start with labour markets, where there are signs of recovery but also growing evidence of damage. The unemployment rate exploded to nearly 14 per cent from 6 per cent during the shutdown from March to May. The rate has dropped steadily since as many displaced workers have been re-engaged, but the second pandemic wave and renewed shutdowns in many provinces have meant more job losses. Employment fell by 63,000 in December, and the unemployment rate rose slightly to 8.6 per cent.

There are many other worrying signs. Long-term unemployment – lasting 27 weeks or longer – has increased sharply and now represents more than one-quarter of those unemployed, with a growing risk of many discouraged workers dropping out of the work force.

Story continues below advertisement

Much of the Canadian work force is underutilized. The most recent Statscan data show that one in six people in the potential labour force are employed but working less than half of their usual hours, unemployed or want a job but are not looking for one.

Women, youth, Indigenous people and new Canadians continue to be particularly affected by pandemic-driven unemployment and underemployment. To help minimize long-term scarring, active labour market policy is called for, including enhanced retraining and skills development, facilitating school-to-work transitions for recent graduates, supporting labour market participation by parents and underrepresented groups, and fully recognizing and utilizing the skills of new Canadians.

Economic output has been steadily rebuilding after the deep contraction during the first shutdown period. The consensus among private forecasters is that GDP shrank by 5.8 per cent in 2020, with real growth of 4.8 per cent projected for 2021. Despite this rebound, the survival of many businesses remains under threat. Even with a successful vaccine rollout and a steady return to more normal operating conditions in many sectors, Canadian GDP by the end of 2021 is projected to be about 3 per cent below GDP at the end of 2019.

Perhaps the most serious indicator of damage is the estimated drop in long-term growth performance for the Canadian economy, which economists call “potential.” The recent federal economic statement provided a revised estimate of Canada’s growth potential, taking into account the pandemic shutdown and uneven recovery.

Long-term growth potential has declined by roughly half a percentage point from estimates before the pandemic, to only 1.4 per cent real growth annually. This drop reflects the combined impact of a sharp decline in investment, the effect on labour markets, plus chronically weak productivity growth.

That growth potential matters. Fundamentally, it determines the capacity for improvements to Canadians’ real incomes and living standards. Slower growth squeezes the capacity to fund public spending priorities such as health care, as well as the ability to manage the much higher level of public debt owing to the pandemic policy response. Long-term annual growth that is half a percentage point lower than before the pandemic increases the odds of an eventual tax increase to fund policy priorities and manage public debt.

Canada’s long-term annual growth potential can be raised back toward 2 per cent, but it will require a reversal in labour market and investment trends this year. As noted earlier, some healing is taking place in Canadian labour markets, but there are also still many individuals at risk. The consensus forecast in the economic statement indicated it will be 2024 before the unemployment rate declines to prepandemic levels.

Story continues below advertisement

A sustained boost to the level of investment would make a valuable contribution to growth, fostering capital formation and faster productivity growth. Increased public sector investment in infrastructure can partly address the investment gap, but higher sustained private investment will be key to maintaining and building the economy’s productive capacity and the ability to innovate.

While investment in maintenance of the existing capital base will recover somewhat as the economy slowly heals, new capital formation is bound to be more difficult. The scale of investment in energy production, distribution and use with low or no greenhouse gas emissions, along with addressing the transition challenges facing the oil and gas sector, will be critical to the long-term Canadian growth puzzle.

The pandemic has inflicted damage on many individuals and businesses. It is not realistic to expect a return to normal any time soon. However, policy can certainly help guide us through the uneven recovery.

Policy action could usefully focus on minimizing labour market scarring as a top priority. Creating the best possible investment climate with an eye on the transition to an economy with low or no GHG emissions also deserves attention. Maintaining international business tax competitiveness has always been a challenge, but one we cannot ignore. Improving the overall competitive and regulatory environment is another option that is fully within our control; more efficient regulatory processes could be adopted without sacrificing health, safety and other standards.

While there is no single silver bullet for lifting private investment, these actions together will go a long way.

Glen Hodgson is a senior fellow at the C.D. Howe Institute.

Story continues below advertisement

Your time is valuable. Have the Top Business Headlines newsletter conveniently delivered to your inbox in the morning or evening. Sign up today.

Your Globe

Build your personal news feed

  1. Follow topics and authors relevant to your reading interests.
  2. Check your Following feed daily, and never miss an article. Access your Following feed from your account menu at the top right corner of every page.

Follow topics related to this article:

View more suggestions in Following Read more about following topics and authors
Report an error
Due to technical reasons, we have temporarily removed commenting from our articles. We hope to have this fixed soon. Thank you for your patience. If you are looking to give feedback on our new site, please send it along to If you want to write a letter to the editor, please forward to

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff.

We aim to create a safe and valuable space for discussion and debate. That means:

  • Treat others as you wish to be treated
  • Criticize ideas, not people
  • Stay on topic
  • Avoid the use of toxic and offensive language
  • Flag bad behaviour

If you do not see your comment posted immediately, it is being reviewed by the moderation team and may appear shortly, generally within an hour.

We aim to have all comments reviewed in a timely manner.

Comments that violate our community guidelines will not be posted.

UPDATED: Read our community guidelines here

Discussion loading ...

To view this site properly, enable cookies in your browser. Read our privacy policy to learn more.
How to enable cookies