Canada debt to GDP 2020
Fitch predicts Canada's pandemic response will increase its consolidated gross general government debt to 115.1 per cent of GDP in 2020, up from 88.3 per cent of GDP in 2019. As a result, net debt to GDP ratios are expected to start accelerating by the mid-2020s. The diversifying properties of bonds to provide ballast to equity volatility remains.At the end of Q2, 2020, we anticipate that median 10-year returns for Canadian bonds will range from 0.50% to 1.50%, compared to a 1.00% - 2.0% range in Q1, 2020 – nearly half a percentage point per annum drop in median expected bond returns, over the next ten years.Similarly, our median 10-year returns expectations global, ex-Canada bonds as of June 30, 2020, hovers in a range of 0.5% - 1.50%, as opposed to a 1.00% - 2.00% range estimated at the end of March, 2020 – a 50 basis points reduction on a per annum basis over the next decade.In a coordinated global effort to thwart the economic impact of the pandemic, governments and central banks in the world's largest economies opened flood gates to monetary and fiscal stimulus packages, resulting in more than $9 trillion in spending, loans and loan guarantees. The Vanguard Group takes no responsibility for any errors and omissions contained herein and accepts no liability whatsoever for any loss arising from any use of, or reliance on, this material.This material is for informational purposes only. And there are already signs—such as a stronger-than-expected May and June jobs report and the retail and food services report showing sales rose 17.7% in May and 7.5% in June —that economic activity is picking up. Our medium-term (2 to 3 years) outlook for the currency is to trade in a 1.30-1.45 range against the USD.In the U.S., we expect output to fall in the second quarter of 2020 before staging a slow and gradual recovery. Indeed, between 2008 and 2015, federal debt increased by about 34%, whereas the provincial debt increased by almost 87%. Extinction. Canada’s debt structure is prudent, it’s spread out over the long term, and it compares well to our G7 peers. Fiscal support so far seems adequate to avoid a large default cycle among highly-levered Canadian households, though this remains a key risk.Canadian CPI is expected to remain under pressure due to reduced demand and depressed commodity prices. GDP growth should continue strong thereafter. It peaked at $563 billion in 1997, before then declining to $458 billion by 2008. We now anticipate the GDP to fall between 5% and 6% in 2020, based on our probabilistic scenario analysis (compared to 6%-7% contraction at the end of Q1). We anticipate three scenarios: Baseline, Upside and Downside (see Figures 1 & 2).Expansion of fiscal support, notably the CERB (Canada Emergency Response Benefit), has been a major driver in limiting the severity of the slowdown and a key reason for our upwards revision (along with higher commodity prices). The sovereign risk premium is assumed to increase by 25 basis points for each one percent of GDP deterioration in the primary balance, resulting in higher gross financing needs of 1-2 percentage points of GDP compared to the baseline. Factors include, but are not limited to, general global financial market conditions, interest and foreign exchange rates, economic and political factors, competition, legal or regulatory changes and catastrophic events.
The current account deficit has been largely financed by portfolio inflows. With that view, Vanguard is more bullish on the global economy than the International Monetary Fund after the latter's most recent economic outlook, though we're less optimistic than much of the industry.Only in China do we expect the recovery to be faster and more V-shaped, with an expected second-quarter rebound in GDP in the high single digits compared with a quarter-on-quarter contraction of –9.8% in the first quarter.Given the severity, variety and volatility of the COVID-19 impact on global economies, Vanguard has taken the unusual step of releasing a fully comprehensive We take a long-term view on investing, and we encourage our clients to do so as well.
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