Every week during the coronavirus crisis, CCDF will be providing its clients with an economic update to help them understand the wider economic implications and better plan their own recovery.
This week, we focus on the macro-economic indicators of the crisis.
How bad is it? The impacts of COVID-19 on the Canadian and Saskatchewan economies will depend on how long the crisis lasts; what economic stimulus governments inject; and how quickly global demand for commodities such as oil, potash, uranium and agricultural products recovers.
A key indicator of Canadian economic health is consumer confidence. Unsurprisingly, it fell 32.0 points in March – its largest single-month decline ever. This comes amidst a slew of unknowns and fears, about the length of the crisis, the number of jobs lost, the impacts on global demand for Saskatchewan resources, and concerns about whether seasonal businesses will be able to operate at all this year. The value of the TSX has also dropped by a third amid investor uncertainty, and nearly one million Canadians have already applied for EI benefits due to layoffs and mandatory self-isolation.
It is possible Canada will face a recession (i.e. two consecutive quarters of negative growth). However most analysts are still expecting a relatively quick recovery and a rebound in 2021. TD Bank is expecting a contraction in GDP in Saskatchewan in 2020 of 0.4%, followed by growth in 2021 of 1.6%. Low commodity prices and weak global demand for resources will have continued impacts. For Canada, it expects a recession can be averted, but growth will slow to only 0.2% in 2020, followed by stronger GDP growth in 2021 of 2.1%. CIBC by contrast expects a sharp GDP contraction of 2.6% in 2020, followed by strong growth of 4.1% in 2021.
There are reasons for optimism. First of all, Canada, and Saskatchewan, are showing early signs of ‘flattening the curve’, or decreasing the incidence and severity of the coronavirus. At time of writing, Canada had the lowest COVID-19 rate per capita of any OECD country except Japan; and the Public Health Agency of Canada epidemiological data showed signs of flattening. While this can change, Canada and Saskatchewan’s widespread testing and early social distance measures are likely to position it better than most.
Second, both the federal government and Saskatchewan provincial government have low GDP-to-debt ratios and so have ample fiscal space to stimulate the economy and help individuals and small businesses recover. We are in a good position to borrow and there appears to be significant political will to do so. More stimulus efforts are expected to be announced this week and will be highlighted in next week’s brief.
When will it end? No one knows how quickly this will end, how pervasive it will turn out, or how profound it will be. However the Chinese experience shows that a recovery is indeed possible. While still slow, their economic activity is rebounding.
There are rapid advances in home testing, prophylaxis, and treatments for coronavirus that may enable a return to a new normal sooner rather than later; and once a vaccine is widely available – perhaps as early as late Fall – COVID-19 related disruptions will end and the recovery can be fully implemented. Much depends on how well the virus is controlled in the next two weeks. For many, a best case scenario for a phased re-opening of businesses is Easter and a worst case scenario is July. Canada’s international travel restrictions will be in place until at least June 30.
What sectors will be most affected? Non-essential service providers who work directly with customers – travel, tourism, personal services, hospitality, entertainment, restaurants, etc. – have already been severely impacted, in large part due to government-mandated shutdowns. Many construction projects have been postponed and some work sites shutdown. It has been a dramatic two weeks. However government supports are likely to target these sectors through a combination of direct transfers, wage subsidies, cheap credit, and deferred bills.
What should I be doing now to prepare? CCDF is offering all of its clients up to $10,000 for professional assistance, through its Business Support Program, to navigate these difficult times, and has retained a number of consultants to help you with your specific needs. Areas of support include identifying and applying for government supports, addressing HR issues, acquiring economic intelligence and financial management advice, and more. Call your CCDF Business Development Specialist to access this program right away.
What are some good resources to learn more? Morris Interactive has compiled a list of free resources that will provide up to date economic information during the coronavirus crisis. You can view those resources here.
Document Prepared by Morris Interactive • www.morrisinteractive.ca • email@example.com • Ph. 1.866.955.3006