Unprecedented, extraordinary and wholly unpredictable: B.C. and Canada are in a marathon into uncharted territory, and if one thing is certain, it’s that it is far too early to know where the finish line is and in what condition our economies will be when we get there.
“We will survive in some form, but it’s going to be rough,” said Kevin Milligan, professor of economics at the University of British Columbia’s Vancouver School of Economics.
“If I saw 20% unemployment in May, it wouldn’t surprise me. We’re talking – and I mean this seriously – Great Depression-level unemployment rates. Now, my God, I hope that’s only temporary. But that’s where we’re going to be for a few weeks, a few months.”
The many government announcements Canadians heard last week are among the first meaningful emergency measures Canadians can expect to see as the outbreak of COVID-19 persists.
Canada’s economic response plan is set to deliver up to $27 billion in direct support to workers and businesses. Some $15 billion of that is earmarked for the enhancement and expansion of employment insurance. Another $55 billion in tax referrals will bring some temporary cash flow relief to businesses and families. Canada’s Big Six banks are also offering mortgage payment deferrals for up to six months.
“I think our national government is responding [in] a pretty meaningful way to this unprecedented shock,” Jock Finlayson, chief economist at the Business Council of British Columbia, told BIV. “Whether it’s going to be enough in the circumstances, I think, is more debatable.”
Those circumstances are changing hourly, and measures critical to addressing what B.C. has now declared a public health emergency will bring further economic impact. Businesses with primary liquor licences have been ordered closed throughout the province. Restaurants in Vancouver must close or offer takeout only. Events are cancelled, theatres are dark, recreational facilities are closed and non-essential travel postponed.
“We are in an absolute free fall. I’ve never seen anything like this,” said Ian Tostenson, president and CEO of the BC Restaurant and Food Services Association. The industry comprises some 13,000 businesses that employ 180,000 workers. “Business owners are crying. It’s just so sad.”
The federal government has promised it will do what is necessary to see the country through a health crisis that is creating an economic one. The multibillion-dollar question: what will be necessary?
The answer depends on the spread of the virus. It depends on the number of layoffs, closures and bankruptcies the country sees in the weeks ahead. It depends on Canadians’ ability to cover their basic needs, let alone record-high levels of consumer debt.
A recession remains inevitable, according to CIBC Economics, which expects the Bank of Canada to cut its overnight rate to its last recession low of 0.25% in the coming month. Many economists agree.
Parliamentary Budget Officer Yves Giroux expects data in March and April will likely reveal sharp drops in growth in employment and gross domestic product.
“The economic impacts of the pandemic will be brutal,” he tweeted.
Last week, Canada saw governments and financial institutions step up to backstop an economy in crisis. While it depends on a broad range of unpredictable factors, it is widely considered that what has been announced is just the start of an economic response plan that may very well include additional funding commitments and new measures from the federal government in the weeks and months ahead.
As an additional lifeline to businesses, Milligan believes there might be room for government to expand the employment subsidy it extends to small companies struggling to meet payroll.
The priority now is to bridge the coronavirus-induced slowdown and mitigate the economic damage. The other side – wherever it is and whenever we get there – will bring its own set of economic and fiscal challenges.
“This is like nothing we have ever seen,” said Milligan. “I think the best we can do is to bend the curve on this crisis and preserve what we can to the other side and rebuild from what we have.”•