Bank of Canada Holds Interest Rates at 0.25% as Economy Contracts

The Canadian economy tumbled into a recession in 2020 because of the coronavirus pandemic. Canadians were quarantined at home, businesses shuttered their doors, and unemployment rang higher. While many are hoping 2021 will be different, all indicators suggest it could be just as tough on the Canadian economy.

In fact, the Bank of Canada recently held its key interest rate target at 0.25% and warned that the Canadian economy will contract in the first quarter and that the economic road ahead looks choppy.

How Will the Canadian Economy Do in 2021?

The Canadian economy wasn’t exactly robust before the coronavirus pandemic shut down the economy. But the Canadian economy was beginning to show signs of strength in the back half of 2020, or at least it looked that way.

A resurgence of the coronavirus put an end to that.

According to Statistics Canada, the country lost 63,000 jobs in December with the unemployment rate inching up to 8.6% from 8.5% in November. This was the first monthly decline since April. Bay Street was looking for the country to shed just 27,500 jobs.

Economic conditions south of the border are just as bad. The Bureau of Labor Statistics reported that the U.S. lost 140,000 jobs in December and the unemployment rate stayed steady at 6.7%, just below a forecast of 6.8%.

Economists are predicting the number of job losses and unemployment levels in Canada to rise in the early states of 2021 as the number of new COVID-19 cases continue to rise.

To that end, the Bank of Canada held its key lending rate at 0.25% and said the country is in for “a choppy recovery and, unfortunately, we’re in a very serious chop.”

While vaccines for COVID-19 are beginning to roll out, progress has been slow. And the Canadian economy continues to get hammered. The Bank of Canada now forecasts that Canadian gross domestic product (GDP) will contract at an annual rate of 2.5% in the first quarter of 2021. It also lowered its GDP outlook for 2021 to 4.0% from previous estimates of 4.2%.

At least until a vaccine can be widely distributed and Canadians return to some sense of normalcy, with businesses opening their doors and Canadians spending more freely, one of the worst recessions in Canadian history will ramble on.

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The Bank of Canada warned that the Canadian economy will contract in the first quarter and that the outlook remains choppy, and will continue to be, until a vaccine is readily available, businesses open their doors, and Canadians begin to spend freely again. That said, the vaccine roll-out has been glacial and there is no immediate end in sight to the pandemic. What does that mean for Canadian and American equities? Ask the professional traders at Learn-to-Trade.com.

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