S&P Global Ratings Revises Up Its Forecast For Canada’s Economic Growth

S&P Global Ratings has upwardly revised its projections for Canada’s economic outlook for 2020 and 2021 while reaffirming its top credit rating on the country’s debt.

S&P forecasts that Canada’s economy will contract 5.9% in 2020 before expanding to 5.4% in 2021. That compares with its previous forecast made in April of a 5.3% contraction this year, followed by 6% growth in 2021.

"Canada’s recovery will occur in two stages: a near-term bounce in aggregate demand and employment activity as lockdown restrictions ease, followed by a more gradual, protracted, and uneven improvement in the economy," the ratings agency said in a statement.

S&P’s positive outlook comes after rival Fitch Ratings removed its highest investment grade rating on the nation, citing a deterioration of its public finances resulting from the COVID-19 pandemic. Canada and Germany are the only members of the Group of Seven retaining their AAA ratings with S&P. Moody’s Investors Service also awards Canada its highest rating.

The aggregated budget deficit for federal, provincial and municipal governments is on track to reach 11.6% of Canada’s gross domestic product (GDP) for 2020 and 2.6% next year, S&P said. It had previously forecast budget shortfalls of 6.9% and 3.9% respectively. The firm projections are part of its credit assessment, though it doesn’t mean it will trigger a rating action.

Canada’s economy collapsed in April, with GDP shrinking by 11.6%, its biggest output decline on record in the first full month of lockdowns to curb the COVID-19 outbreak. Prior to the pandemic, Canada’s economy had never contracted more than 1.5% in any one month.