Economic impact of Omicron variant sharp and short: invasion of Ukraine creates additional overlay of economic risk

OTTAWA, March 15, 2022 (GLOBE NEWSWIRE) -- The impact of the Omicron variant on Canada's economy has been much sharper and shorter than previous COVID-19 variants, according to new research from The Conference Board of Canada. Looking ahead towards economic recovery, Alberta and Saskatchewan are expected to lead growth in Canada this year and next, largely driven by prices for energy products and other key commodities that have recovered strongly. Although not reflected in this analysis, the Russian invasion of Ukraine will also create additional upward pressure on inflation due to valuation increases across the commodities complex and other goods here in Canada.

"The most recent wave of the pandemic exposed the breaking point of government policy measures among a weary public, but vaccinations and boosters helped contain the outbreak," said Ted Mallett, Director, Economic Forecasting, The Conference Board of Canada. "Employment and output are basically back to pre-pandemic levels, all that is needed now is to make up the difference we would have normally seen as a result of population growth and technological advances. We expect these gains will be made in 2022, and by 2023, growth momentum will briefly push the economy further ahead before settling back to levels in line with its long-term drivers."

The Conference Board of Canada forecasts real national gross domestic product (GDP) will expand 3.9 per cent in 2022 and 3.3 per cent in 2023. The most recent variant impacted employment nationally, which suffered a sharp pullback in January, but is expected to recover rapidly throughout the winter months. Employment will rise 2.4 per cent in 2022, followed by a 1.3 per cent gain in 2023.

Although Newfoundland and Labrador weathered the first waves of the pandemic well, the Omicron variant had a significant impact. The Conference Board of Canada expects this to be limited to the first quarter in 2022, after which economic activity, including travel to and from the province, should improve. Muskrat Falls will add to the utilities sector's growth in 2022, while in the mining and energy sectors, the Voisey's Bay expansion has started producing and oil should start flowing again at the Terra Nova oil field this fall.

Alberta is expected to increase its GDP by 5.9 per cent this year and 4.3 per cent in 2023. The energy sector should be a key driver of the province's recovery, due to tight inventories worldwide in light of geopolitical tensions and following low investment and supply outages in OPEC+ countries. Accordingly, The Conference Board of Canada anticipates drilling activities in the province to increase, also supported by the Line 3 pipeline expansion, which went into service last October and has already shown positive results in getting Alberta's oil to markets.

The Conference Board of Canada forecasts that Saskatchewan will have the second highest growth in Canada in 2022 and 2023, at 5.5 per cent and 4.0 per cent respectively. Global demand for fertilizers remains high and potash prices will continue to climb. Non-residential investment will play a key role in positioning the economy for growth over the coming years. Several major private investment projects are in the works. Among them, three canola processing plants, an integrated canola processing biodiesel plant, and BHP's Jansen potash mine are all expected to break ground over the next two years. The construction sector will be the immediate beneficiary and is projected to grow by 6.0 per cent in both 2022 and 2023.

Ontario's economy was severely impacted by supply chain issues. While the manufacturing sector should regain its footing, the global semi-conductor shortage will continue to take its toll, specifically on the automotive industry. With the supply issues likely to persist well into 2022, Ontario's manufacturing sector will continue to be a drag on the province's economic recovery over the near term. Housing markets will remain a major driver for Ontario's economy, providing a cushion while supply disruptions remain an issue.

The Conference Board of Canada sees three key challenges for British Columbia in the year ahead. A tight labour market will hamper growth. While worker shortages in the accommodation and food sector are a national problem, B.C. felt these impacts most of all. Bolstering supply chains pose another challenge. When the Port of Vancouver was briefly cut off from the rest of Canada by flooding late last year, it shone a light on B.C.'s dependence on a few key transportation corridors. The pandemic remains a third challenge that B.C. continues to battle. Households and businesses are learning to live with COVID-19, but a complete recovery won't happen in some sectors until the pandemic is largely contained.

The research is available here. Media should contact [email protected] with any questions or interview requests.

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