MNI POLICY: Canada GDP May Slow on New Tighter Covid Rules

Canada's two most populous provinces are clamping down on large gatherings that brought a fresh rise in Covid-19 infections, likely curbing economic growth and widening budget deficits well before pre-pandemic levels of activity are restored.

Ontario Premier Doug Ford told reporters Thursday he is again restricting gatherings around Toronto and Ottawa where virus hot-spots have emerged, to 10 people indoors and 25 outdoors, adding "we will throw the book at you if you break the rules." Quebec Premier Francois Legault has also expressed frustration around big parties that shifted growth in new cases from the elderly to young people, and warned he may order fresh school and business shutdowns.

The two provinces account for 23 million of Canada's 38 million people and are home to the most of the country's major financial exchanges and corporate headquarters, along with some of its biggest factories and mines. Output is also being hampered by the continued closure of the land border with the U.S. except for essential goods, holding back the 75% of Canadian exports that head south in one of the G20's most trade-dependent economies.

Prime Minister Justin Trudeau this week also shifted his tone, saying the focus returns to saving lives over previous signals that he will bring in major environmental and social programs that add to the record CAD343 billion deficit worth more than 15% of GDP. Any major slowdown would also pressure the Bank of Canada to offer more QE again after the balance sheet leveled off this summer as corporate repo demand slowed.

Canada's growth was already slowing after the burst from the initial re-opening, TD Bank said in a report Thursday. Provincial budget deficits will exceed CAD100 billion or 4.5% of GDP this year and national GDP will decline 5.6%. "The recent uptick in COVID-19 cases in some regions also serves as a reminder of the ongoing drag exerted by the pandemic until a vaccine is made available," economists led by Beata Caranci wrote in the report.

The other risk in coming months is the return of public schools and universities across most of the country, widening social bubbles health officials were using to prevent the virus spreading.

"The ongoing increase in daily case counts over many weeks, including outbreaks linked to private gatherings and events where public health guidelines, such as physical distancing and wearing of masks, were not followed continue to increase the risk for COVID-19 spread getting out of hand," Canada's Chief Public Health Officer Dr. Theresa Tam said in a statement Thursday.