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On Wednesday, the Canadian Prime Minister and Finance Minister announced a bold fiscal stimulus to fight the economic downturn. Analysts at CIBC consider that the latest steps taken should cushion the blow, but cannot prevent a coronavirus recession.

Key Quotes: 

“The impact on the deficit from these measures, as well as the tumble in tax revenue in a slowing economy, won’t be pretty, even allowing for the fact that deferred tax revenues will still come in later. The costs of these new offers will depend on just how many people end up qualifying due to job losses or other reasons. Provinces are also stepping up on various fronts, and could face soaring health care costs (potentially extending to emergency measures to add to the capacity of the system where possible).”

“Other than a massive QE program, or less likely, negative rates, the Bank of Canada still has one conventional bullet it chose not to fire off today, which would entail cutting the overnight rate to 25 bps, the low in the last recession. We still expect it to deliver that final rate cut in the coming month or so.”

“A recession is still inevitable, with a deep dive coming in Q2 due to near-mandated cuts in household spending here and in our export markets, an oil industry shock, and potential supply disruptions from domestic and foreign producers. While a further contraction in Q3 would likely be more modest, we will still feel the spillover impacts from layoffs and the energy sector’s troubles. But the measures announced today support the likelihood of a V-shaped bounce back once the disease issues have crested.”