COVID-19 resurgence may clip Canada's economy less than in spring

By Fergal Smith

TORONTO (Reuters) - Canada's economy could suffer a smaller hit from a second wave of the coronavirus pandemic than earlier this year, as provinces strive to avoid broad-based lockdowns and take targeted measures to deal with outbreaks, strategists say.

That, coupled with Ottawa's continued financial support for the unemployed and measures to prop up the economy, would help the country to cope better with the resurgence, they added.

Prime Minister Justin Trudeau said last week that the country has entered a second wave of the pandemic, warning Canadians to be prepared for a fall "that could be much worse than the spring."

The number of daily new infections has already climbed to near May's peak of about 1,800, using a seven-day moving average, but deaths are running at a much lower level as cases become concentrated among younger people and hospitals gain experience coping with the virus.

Canada reported 1,660 new COVID-19 cases on Tuesday, taking the total to 156,961. A total of 9,291 Canadians had died of the disease as of Tuesday, according to Health Canada, the country's public health agency.

A lower mortality rate suggests measures to contain the second wave will be focused on vulnerable economic sectors and hot spots, allowing the economy to continue its recovery, economists say.

"We do not anticipate the same kind of economic damage that we saw in March and April," said Sal Guatieri, a senior economist at BMO Capital Markets. "There is likely pretty little appetite for renewed shutdowns of the broader economy."

Guatieri expects Canada's economy to grow at an annualized rate of 48% in the third quarter, with further expansion seen in the final quarter at a 3.9% pace.

In contrast, Canada's economy contracted at a record rate of about 39% in the second quarter, when non-essential businesses were closed.

Some other countries, including the United States, have opted for targeted shutdowns during a second coronavirus wave.

CASH SAVINGS

Canadian sectors such as construction and manufacturing are unlikely to face closure, said Benoit Durocher, a senior economist at Desjardins. "I don't think it will be the same this time."

Quebec, the Canadian province hit hardest by the pandemic, said on Monday it will curb social gatherings in homes and limit bar and restaurant service in Montreal, its largest city, and two other regions.

Ontario, the nation's economic engine, also imposed fresh curbs on social gatherings but has refrained from widespread shutdowns despite a sharp rise in new cases.

Should more severe limits on gathering sizes and customer-facing services be required, they "would probably be localized to areas experiencing more pronounced outbreaks," said Stephen Brown, senior Canada economist at Capital Economics, adding that "households look well-placed to deal with renewed restrictions."

Canadians have been boosting their cash savings during the pandemic, while Ottawa has vowed to double down on pandemic-related spending, including a boost to a weekly payout for the jobless, to keep the economic recovery going.

The economy may also take comfort from the reassurance that a broad-based shutdown is not on the way.

"As long as most industries have a sense that they can continue to operate even through a semi-second wave of the virus, I think that will give them confidence to retain staff, invest in their business and keep the economy moving forward," Guatieri said.

(Reporting by Fergal Smith; Editing by Denny Thomas and Paul Simao)