Alfred Romann is a business journalist and economist specialising in the Americas and Asia

Canada’s rebound from the Covid-19 economic crisis may have come and gone even before the pandemic begins to ebb.

The numbers suggest two things. First, the economic pain could last long into the future. Second, there is a possibility that patterns of spending in Canada could be altered for quite a long time, with more people keeping a lot more cash in the bank.

Painful contraction

The Canadian economy contracted 11.5% in the second quarter of this year but then grew 10% in the third. The third-quarter growth represented an annualised jump of 46%, a record high.

From here on out, however, it is all likely to be a slow and painful slog. And with cases of Covid-19 in Canada rising again in the weeks heading into November along with a growing likelihood of more lockdowns, that slog could get even slower.

The Canadian economy grew 1.2% in August, and preliminary figures from Statistics Canada suggest real GDP grew 0.7% in September, with the growth rate possibly slowing down even further in October.

The quick rebound may be over, in part because once-bitten twice-shy Canadians have not opened up their wallets with any kind of gusto. Heading into November, economic activity remained about 5% lower than in February, before the pandemic lockdowns kicked in.

Cash keepers

In broad strokes, Canadians seem more eager than ever to hold onto their cash. They are saving more and, by necessity, spending less. When spending falls, growth slows.

The household savings rate in Canada more than doubled from 3.6% in the last quarter of 2019 to 7.6% in the first quarter of 2020 before exploding to 28.2% in the second quarter. Some of this increase in savings may have been linked to the limited opportunities to spend during the lockdowns that started in March, and some is likely associated with the economic uncertainty created by the ongoing and open-ended pandemic.

The quick rebound may be over, in part because once-bitten twice-shy Canadians have not opened up their wallets with any kind of gusto

One upside for families that have been trying to cope with the stress of the pandemic is that fewer of them are now living on a wing and a prayer. The number of Canadians living paycheque to paycheque fell from 43% last year to 37% this year, according to the 12th annual survey of working Canadians by the Canadian Payroll Association. The figure is the lowest ever recorded.

But this is hardly good news for businesses that are hoping to get customers back. For them, the question at hand is whether Canadians will get back to spending once the pandemic is over. All these savings could fuel an economic revival – but only if they are unleashed. If the shift away from spending and towards more savings is permanent, consumer spending could stall and so could economic growth, and for years to come.

Consumer power

If Canadians open up their wallets though, the economic recovery could be swift – the much sought-after V-shaped recovery (ie, strong re-emergence from a short, sharp recession). If they don’t, the recovery is likely to be much slower, with different sectors recovering at very different rates (a K-shaped recovery), or characterised by persistent unemployment and stagnant growth (an L-shaped recovery).

Economic growth numbers from October suggest that Canada’s recovery will indeed be, as many fear, K or L-shaped. In other words, the country’s economic and financial resurgence will be slow and painful.