Cause and Effects of the 2022 Recession in Canada Application

Running head: CAUSE AND EFFECTS OF THE 2020 RECESSION IN CANADA
Cause and Effects of the 2020 Recession in Canada
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CAUSE AND EFFECTS OF THE 2020 RECESSION IN CANADA1
Introduction
The global pandemic related to the corona virus created a crisis all around the world. It
also hit the economy of Canada dramatically and the major indicators that represent the
macroeconomic health of the country has affected due to the crisis of COVID-19 (Baldwin and
Eiichi). It is estimated that the country might lose millions of jobs and it is headed towards the
recession. In recent times, the application for the employment insurance also rose to significant
level to 4000%.
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The outbreak of the pandemic COVID-19 affected the economies around the world.
Thus, the spread of the COVID-19 also influenced the major indicators of the Canada, which
may result in recession in the country (Fernandes). The major indicators that shows a sign that
the country is headed towards the recession include interest rate, gross domestic product (GDP)
rate and unemployment rate. The country registered a weakest expansion since second quarter of
2016 in December 2019. It advanced by 0.15 due to fall in export by 1.3% and slower business
investment. The spread of the corona virus will further weaken the growth of the trade and
business in 2020 (Theguardian.com). Thus, it aggravates the chance of contraction in economic
growth. As per the prediction, more than 3 million people might lose jobs due to the pandemic.
In March 2020, the unemployment rate of the country was also at its peak of 7.8%. The interest
rate in the country also remained significantly low, which is cause of concern.
The aggregate demand and aggregate supply of the country can be illustrated on the basis
of total demand and supply of all goods and services in a country. Therefore, there exists close
interconnection between the aggregate supply and aggregate demand of the country. Moreover, it

CAUSE AND EFFECTS OF THE 2020 RECESSION IN CANADA2
helps to determine the macroeconomic health of a country. As the COVID-19 spread in Canada,
it disrupted the import and export between countries. It also affected the consumer spending and
business investment. The business sentiment of the country was also record low. There was a
slight improvement in the consumer spending in fourth quarter of 2019 to 1187371 million CAD
from 1181631 million CAD in third quarter of 2019 (Ozili and Thankom). Thus, it may hamper
the aggregate demand of the Canada. Both the real output and price level were also influenced,
which in turn may affect aggregate supply of the Canada. Thus, these two plays an important role
in heading the country towards the recession in 2020.
The overheated housing market led to the financial crisis and Great depression of 2008.
There were huge approvals of mortgages form the bank and other financial institutions when the
house prices were up. Later, the lower house prices led to the non-payments of mortgage by the
American. It led to the deeper job losses and bankruptcy of the banks. Whereas, the reason
behind the 2001 recession was Y2K scare related to the computer codes that shows a particular
year with the last two digits (De Vito and Juan-Pedro). At first, there was a short lived economic
boom and then sales of the software and computer dropped sharply. The situation worsened due
to the 9/11 attack. However, the recession of 2001 was mild in nature as per the total output.
Thus, the expected recession in 2020 due to the COVID-19 could be more disruptive than the
2001 recession and it can be compared with the 2008 recession in terms of severity. Whereas, it
could even worse than the 2008 recession and may recover in 2021. The recovery would be U or
V-shaped if there exists ample stimulus from the government along with effective containment
of the outbreak. The recover would be I or L-shaped if the economic activity fails to rebound and
there exists continuous shocks.