The waves of catastrophic economic news have been relentless and staggering.
More than $1 trillion wiped from Canadian stocks in a month. A record 500,000 workers applying for employment insurance in a single week. Businesses abruptly shuttered. Airlines suspended. Factories closed. The largest autoworker mass layoff ever. Whole sections of the economy ground to a halt and a global recession all but guaranteed.
Not to mention the $82-billion federal aid package announced Wednesday — the largest government bailout in the country’s history.
“I’ve been doing this for about 40 years and I don’t think I’ve come across anything like this,” said Sheila Block, senior economist at the Canadian Centre for Policy Alternatives. “It’s going to be really big and it’s going to be really bad.”
In the wake of an historically volatile period for the Canadian and global economies, the outlook is undoubtedly bleak. Just how bleak is as uncertain as the course of the coronavirus itself.
“The monitoring of the economy is almost at the same intensity as the monitoring of the COVID-19 cases,” said Larry Smith, an economics professor at the University of Waterloo. “The longer it lasts, of course, the broader the damage becomes.”
The Star spoke with four economists to try to get a sense of what the future holds for the Canadian economy. All of them said we are in uncharted territory and there’s no historical parallel for what’s happening right now.
“It’s hard to contemplate anything like this,” said Pedro Antunes, chief economist for the Conference Board of Canada. But the “demand shock” required by social distancing should be less economically dangerous than the 2008 financial crisis, he said, so the economy should be able to quickly bounce back.
“But it all depends on this very big unknown, which is the virus and our ability to contain it.”
Even before the coronavirus outbreak, Canadian economists and policy-makers were already bracing for the possibility of a fairly deep recession, said Tammy Schirle, an economics professor at Wilfrid Laurier University.
“Now it’s kind of like we’re mixing a public health crisis together with a recession and trying to keep everyone afloat,” she said. “There is clearly no blueprint for how to move forward with this or the best way to do it.”
The short term
You don’t need to be an economist to see that the social distancing measures we’ve implemented are hurting the economy. “Just look at the streets,” Smith said.
But the pain is not distributed equally. Retail, food services, transportation, entertainment, recreation and hospitality are disproportionately affected. Those sectors make up a significant portion of Canada’s GDP — roughly 13 per cent — and they alone can alter the growth of the economy, especially given the massive, sudden losses they’re currently dealing with.
The emergency federal aid package was aimed at quickly helping those workers and businesses most directly affected by COVID-19.
“The very immediate priority is just trying to make sure people have the opportunity to stay home,” Schirle said.
To put the size of Wednesday’s bailout in context, the federal government and the provinces combined spent $54 billion over several years to boost the economy following the 2008 financial crisis. And even though Wednesday’s $82 billion outlay was massive, all of the economists surveyed by the Star considered it only the first step.
The major banks also announced increased flexibility on mortgage and loan payments, all geared toward helping businesses and consumers weather the economic storm.
“So that when we finally get through this and people can start going back to work, there’s jobs to go back to,” Schirle said. “They’re still going to be hit really hard by this. It’s going to take a while to recover, but at least there’s a better chance of doing that.”
Some businesses have complained the aid isn’t enough.
“It may well not be enough,” said Smith. “I say with no political prejudice whatsoever that I believe the government response is prudent in the circumstances. They also plainly said that they will take further measures as necessary.”
The government has to be mindful of the long-term consequences of this kind of spending, Smith said, and the goal should be to take a “meaningful step,” which he believes it did.
“The amount of money on the table is enough to have some economic effect,” he said. “You’re ameliorating the disadvantage. It might well not be enough, but again you have to monitor the situation.”
Schirle said it would be wise for policy-makers to take some time to figure out which businesses are going to need the most assistance and how best to deliver that assistance. “Because that’s sort of a second priority, or possibly a third, although business owners will think of it as first.”
Block was encouraged by how quickly government aid was announced, but she was hoping the government would guarantee everyone the maximum EI payment, given how difficult it will be for some workers to survive on 55 per cent of their insurable wages. “We know that people who are earning minimum wage can barely make it on 100 per cent of their earnings.”
The long term
The big questions for economists are 1) How long will this last? and 2) What losses are gone for good?
The longer this goes on, the deeper the strain will be on certain businesses. They may not all survive.
Businesses that can’t stockpile what they sell are in the toughest position. When your favourite pub reopens, you’ll be back, but the money you would have spent in it today is “gone forever,” Smith said. “We can’t bank time as consumers. The amount of entertainment I can consume in my lifetime has now been reduced. That, of course, exacerbates the long-term effects.”
What if this goes on for two or three or four months? Or longer?
“That’s when I think the stresses will really start to show up,” Antunes said, adding that he’s worried most about the “multiplying effect” of consumers’ uncertainty and lack of confidence in the financial sector.
“This could last three months, six months or there could be more dire scenarios where we see this lasting a fair bit longer, and there I would start to get concerned about what we might consider the long term.”
Block said another long-term effect could be that industries that were already at risk and on the cusp of big changes could see those changes accelerated and might “push some over the edge.”
She cited changes in demand for fossil fuels and also the shift to more online sales in the retail sector as two examples.
Governments should be thinking about how to support workers and regions that rely on those industries that may be forced to transition.
“That’s the longer-term project,” she said. “What we know from other countries is this pandemic seems to pass — with terrible loss and death — but once we have kind of stabilized, I think it’s going to be really important for governments to turn their attention to this.”
Businesses big and small are facing an uncertain future, from manufacturing giants like Boeing, which is desperate for government aid to stay afloat; to the independent restaurant in your neighbourhood, which likely gets by on razor-thin margins at the best of times.
Particularly hard hit are airlines, cruise ship companies, sports franchises, hotels and theatres, which have seen billions of dollars in potential revenue vanish almost overnight, along with the oil industry, which was already reeling from tanking prices and could face a bloodbath in the event of a global recession.
Given how heavily Canada relies on the U.S. for cross-border trade, Antunes said the U.S.’s ability to contain the virus will be nearly as important to the Canadian economy as our own efforts.
“If there’s a situation where Canada does well in terms of our health measures, but they’re not doing so well in the U.S., I think that’s a continued risk to our economy. So we do need to see North America do well in terms of containing this.”
Reasons for optimism?
In spite of all the obvious bleakness, the economists surveyed by the Star said there are still reasons to be hopeful.
“We should not underestimate the ability of the economy to bounce back from something like this,” Block said. “We are a very rich province in a very rich country. We have a lot of resources and I absolutely think that the economies will recover. I think what we want to do is minimize the harm done to individuals and families through this process, and we know the greatest harm is likely to those people who are most marginalized and have the least resources.”
Antunes is also confident in the Canadian economy’s ability to recover.
“There’s nothing that bounces back more quickly than consumer spending,” he said. “As long as the incomes are there and the income supports are there, people will hold off on purchases, they’ll hold off on vacations, but sooner or later they’re going to get back out there.”