Virus woes to weigh on Q1: RBC

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The negative effects of the omicron variant on economic activity has led RBC Economics to slash its first quarter forecast.

In a research note, the bank’s economists revised their growth estimate for the first quarter down sharply to 1.5% from their previous forecast of 4%. RBC cited the effects of Covid-19, which has prompted public health restrictions, curbed activity and driven labour shortages.

“We expect businesses within the travel and hospitality sectors to continue to bear the brunt of restrictions. Indeed, our card spending data already indicated a sharp decline in travel spending in December,” it said.

At the same time, the spike in cases “has probably pushed a large share of the workforce into self-isolation, adding to near-term labour supply issues in other sectors,” RBC added.

While the immediate impact on growth looks severe, the report also indicated that economists expect a quick rebound in the second quarter.

“This latest wave of Covid-19 is multiples larger than those that preceded it. But the speed of the spread means it’s also expected to run its course more quickly, [and therefore] we expect growth in the economy to bounce back in Q2,” it said.

Additionally, the report indicated that the effects of omicron are not likely to sway the central banks, which remain focused on inflation.

“We do not expect the latest wave of virus spread to prevent the U.S. Fed (or the Bank of Canada) from hiking interest rates in the first half of this year,” RBC said.

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