Canada's central bank has admitted that it cannot forecast the future right now with any degree of confidence.
Its newly released biannual "Monetary Policy Report" assesses the overall economic impact of the COVID-19 pandemic on Canada rather than following its usual format of projecting growth in the country's gross domestic product.
The bank's governing council notes in the 27-page report that until the COVID-19 outbreak is brought under control, "a substantial proportion of economic activity will be affected".
It also concludes that a "sharp contraction in the global economy in the first half of the year is unavoidable".
That's due to an unprecedented increase in unemployment, elevated indebtedness, abrupt deterioration in business and household confidence, and a drop in income.
"While the global and Canadian economies are expected to rebound once the medical emergency ends, the timing and strength of the recovery will depend heavily on how the pandemic unfolds and what measures are required to contain it," the report states. "The recovery will also depend on how households behave in response."
The report acknowledges that the sudden impact of the pandemic "created shockwaves in financial markets, leading to a general flight to safety, a sharp repricing of risky assets and a breakdown in the functioning of many markets".
"The fall in commodity prices, particularly the plunge in the global price of oil, is also weighing significantly on the Canadian economy," it adds.
Governments have responded with massive fiscal packages in response to the pandemic and to assist households and businesses, the report notes.
And central banks are providing liquidity to financial institutions with "large-scale asset purchases" and by driving down interest rates.
"Still, credit conditions are likely to remain strained for some time due to heightened uncertainty and concerns about credit risk," the report states.
"These aggressive fiscal, monetary and financial measures, however, are laying the foundation for a sustained economic recovery as the virus recedes and authorities relax control measures."
The report was released on the same day that the Bank of Canada maintained the target for the overnight rate at 0.25 percent.
Inflation may fall to almost zero percent
Meanwhile, household wealth has decreased in part because of the fall in stock-market values.
"This is likely to prompt consumers to increase their precautionary savings and restrain their spending," the report warns.
As a result, inflation in Canada is expected to fall to near zero percent in the second quarter of 2020.
"Canadians will see increases in prices of some items in the near term, given upward pressure from supply-side constraints and pass-through of the depreciation of the Canadian dollar," it states. "However, the decline in gasoline prices and the effects of lower demand can be expected to dominate in the overall measure of inflation."
The value of the Canadian dollar has taken a hit due to the fall in commodity prices and the appreciation of the U.S. dollar as investors seek a safe haven.
The Bank of Canada expects any recovery in oil prices to be "gradual" due to high inventories brought on by a sharp fall in international demand.
The report points out that the global financial system is still under "extreme stress" as investors have sold risky assets to increase cash buffers and bought the safest financial products.
"While the tightening of corporate credit conditions is broad-based, it has been particularly pronounced in the North American energy sector given the steep decline in oil prices," it notes. "Persistently tight credit conditions could significantly limit the pace of recovery for highly indebted businesses and vulnerable emerging-market economies even after COVID-19 is brought under control."
The report includes a long list of key policy measures introduced by financial regulators, the Bank of Canada, and federal, provincial, and municipal governments.
Two of the central bank's key changes have been to lower the target for the overnight rate by a cumulative 150 basis points and buying a minimum of $5 billion per week in Canadian government securities.
In addition, the central bank has introduced a provincial money-market purchase program.
Today, it announced that it will develop a provincial bond purchasing program to buy up to $50 billion in debt instruments.
In addition, the Bank of Canada will buy up to $10 billion of investment-grade corporate bonds in the secondary market.
The report does not address longer-term structural changes that may take place in the economy as a result of people getting used to working from home. It also had nothing to say about what might happen in the commercial or residential real-estate sectors in the coming months or years.