(Bloomberg) -- S&P Global Ratings revised its projections on Canada's economic and fiscal outlook for 2020 and next year while maintaining its top credit rating on the nation's debt amid the coronavirus crisis.
Canada's economy is expected to contract 5.9% in 2020 before expanding to 5.4% next year, senior economist Satyam Panday said in a report. 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 Tuesday.
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S&P amended its economic projection on Canada days 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 with its highest rating.
The aggregated budget deficit for the federal, provincial and local governments is on track to reach 11.6% of country's gross domestic product for 2020 and 2.6% next year, the S&P report 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 gross domestic product shrinking by 11.6%, its biggest output decline on record in the first full month of lockdowns to curb the coronavirus outbreak. Before the crisis, the economy had never contracted more than 1.5% in any one month over the past 60 years.
“The nature of the shock means there will be permanent losses,” Panday said, adding that Canada's economic output will still be 2.5% lower in 2023 compared with his pre-Covid outlook.
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