We are entering the euphoria stage of the pandemic economy — surging on a sugar high after a deep, dark shutdown, but only in a temporary way before the long slog to total recovery.
The Bank of Canada has at last published a “central scenario” for what the future holds, and while it’s not quite the full forecast we’ve been waiting for, its analysis is telling and will demand some fresh strategies to handle what lies ahead.
Yes, Canada is past the worst of it, the central bank says. And now, we’re heading into a period of rapid growth as some of the pandemic restrictions come off.
But that bounce back to life will soon be exposed as a troubled recuperation that is unique by historical standards — held back by fear, uncertainty and persistent weakness in the service industries that normally carry us out of a recession.
We won’t really taste full recovery until well into 2022, and even that distant date depends on the availability of a vaccine or treatment.
Along the way, many companies will go under, investments will be cancelled or reoriented, workers will need to find new jobs and the ability of the Canadian economy to hum along as usual will be permanently damaged.
The implications for business, workers and policy-makers alike are ominous. We will have to think very differently about how we work, how we spend as consumers and as governments, how we tax, and how we train for the future.
A few key numbers: The bank believes Canada’s economy contracted by almost 15 per cent this spring. April was the nadir, and we began to stabilize in May and June.
Now, supported by the federal wage subsidy and the lifting of some pandemic restrictions, companies are hiring workers back and revving up their businesses.
By the time we get to the fall, about 40 per cent of the plunge will have been reversed, the bank predicts.
But what about the other 60 per cent? It will take two more years — if all goes as planned and there’s no broad second wave of the virus here or abroad.
The long hangover will be due in part to a couple of intangible factors: Fear of catching COVID-19 will keep many shoppers and workers sheltered at home, and uncertainty about losing jobs will prevent consumers from spending their savings or investing in new ventures.
And as long as virus-related restrictions remain in place, some key service-oriented areas of the economy will continue to limp along. Think hotels, the travel industry, retail and food services.
Traditionally, those service-oriented sections lead the way to recovery. This time, they’re being hit repeatedly by ever-changing rules that will have to intensify at a local level every time there’s an outbreak of COVID-19.
In the meantime, since the United States is having such a hard time with controlling the spread of the virus, its recovery will happen in fits and starts, and the economic consequences will wash over the border into Canada, warns the central bank’s new governor, Tiff Macklem.
How do we come to terms with this?
The Canadian Chamber of Commerce has teamed up with Statistics Canada to figure out exactly where employers and companies are at right now, and they’ve found that government supports have been working somewhat.
The wage subsidy has helped about 22 per cent of businesses stay afloat and keep at least part of their workforce active. More than a million people have gone back to work, and many more have resumed normal hours.
But that rehiring activity seems to be plateauing now, even as there are still millions out of work or working less than usual, the chamber numbers show, because many companies don’t have the revenues coming in to warrant a complete rehiring of their workforce.
About eight per cent will face closure or staffing cuts within three months, unless things improve, and that rises to 20 per cent over six months.
“It’s very fragile,” says Patrick Gill, the chamber’s senior director of tax and financial policy.
He was glad to hear the Bank of Canada say it would keep its low interest rates and accommodating monetary policy in place for the long haul. But Ottawa needs to be a lot more creative than that, he adds.
If the federal government makes its wage subsidy more flexible, extends and enhances its commercial rent supports and thinks about what kind of tax policies could be applied to encourage investment, businesses will find it easier to function on a day-to-day basis, he says.
An ample supply of personal protective equipment, and clear rules on when to wear a mask will also help.
The central bank has promised to be on hand with whatever it takes until there’s full recovery, but it will need the help of the federal government, business leaders and workers themselves too.
Business as usual is not in the offing, despite the fleeting joy we may feel as we are allowed once again to open our front doors.
Heather Scoffield is a columnist with Torstar Syndication Services.