The economic and financial impacts of COVID-19 are unprecedented, and recovery will vary across sectors and regions. Deputy Governor Timothy Lane explains how the Bank of Canada is helping businesses and individuals weather the storm.
An unparalleled time in history
We have never faced a crisis like COVID 19, which dealt a sudden and severe blow to our economy and financial system.
The Bank acted swiftly to support households and companies
In times of crisis, when incomes drop, people and businesses need access to credit to get them through. When the economy shut down in March, markets seized up and we saw a lack of cash—or liquidity—in the system. The Bank stepped in to keep markets functioning in two ways:
- We made it easier for financial institutions to access funds so they have more credit available for borrowers.
- We are buying up bonds and other debt, which frees up cash that companies and governments can put toward paying salaries and providing emergency benefits.
As a result of these actions, market functioning has improved. Banks have credit to lend, and people and companies can access the funds they need to cover day-to-day expenses.
If Canadians cannot pay their bills and businesses cannot service their debts, the recovery will be weak. That is why the availability of credit has been a central focus of the Bank’s policies throughout this crisis.
The timing and nature of the recovery are uncertain
There are many possible paths to economic recovery. Much depends on how long restrictions last, when employment levels stabilize and how quickly consumer and business confidence return. Some areas will see greater and longer-lasting impacts than others.
- Essential services as well as industries that could operate remotely are expected to rebound quickly.
- The service sector has seen significant layoffs in the short term, but rehiring could roll out swiftly when the economy reopens.
- Travel-related industries such as airlines, cruises and accommodations have suffered due to containment measures and will be slower to recover.
- The oil industry was already facing challenges before COVID 19, and prices are dropping further with little demand; this will continue to impact Western provinces.
Just as the effects of the pandemic have been highly asymmetric, the recovery process is expected to vary significantly across sectors and regions of the world economy.
Our economy may look different after recovery
The impacts of the pandemic may be far-reaching, and the effects on some sectors could be permanent. How changing consumption patterns will affect both the rate of inflation and how we measure it is unclear.
However, the economy was in good shape heading into this crisis, and the Bank will continue to shore up this foundation toward an eventual recovery.