A Slow and Painful Recovery: What to Expect From Canada’s Economy After COVID
As the number of new Covid-19 cases in Canada continues on a steady downward decline (at the time of this writing- there are approximately 103,000 confirmed cases, with just over 8,500 deaths), provinces are slowly allowing the re-opening of businesses and as we head into summer, it appears that life may soon be getting back to near-normal for Canadians- after a long winter (and spring) of discontent.
Irreversible damage has already been done to our economy- causing all levels of governments to go heavily into debt to pay for stimulus packages aimed at helping Canadians survive the pandemic. We touched on this topic in our previous blog, found here: https://www.apaylo.com/post/drowning-in-debt-how-canada-s-massive-deficits-will-affect-you
With a total debt load of $1 TRILLION, just last week Canada saw it’s sterling AAA credit rating downgraded by Fitch, citing “Deterioration of public finances in 2020 resulting from the coronavirus pandemic.” This will make future borrowing more expensive for Canada’s federal government- as Canadian debt instruments are now deemed as being riskier investments. This will ultimately result in higher taxes and higher prices for Canadian businesses and consumers- not good at all for an economy that is already struggling.
It is hard to gauge what recovery will look like for the economy as a whole- because different sectors of the economy will re-open and re-adjust differently- with some bouncing back right away; and others taking much longer to recover.
"Across industries, no two recovery paths are likely to be identical," states TD Bank senior economist Brian DePratto.
In a recent analysis, (https://www.cbc.ca/news/business/economic-recovery-letters-analysis-1.5574372) TD Bank sees most sectors of Canada's economy recovering in one of three ways:
Entertainment, travel and tourism, and the Arts are projected to see a huge plunge and a long path of recovery. Airlines, cruise ships, and hotels have been hit hard by Covid, and will continue to suffer as tourism rates remain low and people stay at home. Many airlines have filed for bankruptcy and some are undergoing restructuring in a last-effort bid to stay solvent.
Some sectors such as transportation and food retail are predicted to encounter only a moderate near-term hit followed by a quick recovery- which makes sense as these are among the more basic staples consumers require. Pandemic or not- people still have to eat.
The rest of the economy will likely undergo a sustained period of pain; followed by a gradual upward climb back to the equivalent of pre-pandemic levels.
However- as we emerge from Covid- one tragic fact that remains is that a LOT of small businesses- who couldn’t afford several months of closure- will no longer be with us. Over the past few months, thousands of local, independent ‘mom and pop’ businesses across Canada have gone under and permanently closed their doors; and although it is still too early to assess the full damage, CTV News stated in an article that two thirds (2/3) of all small businesses in Toronto may be forced to close for good. (https://toronto.ctvnews.ca/nearly-two-thirds-of-toronto-small-businesses-say-they-may-have-to-close-over-next-three-months-survey-1.4906692)
Good news for multi-national big box retailers like Amazon and Walmart, no doubt- who have seen profits and market share soar during the pandemic- but bad news for the smaller independent merchants who essentially make up the backbone of our economy.
RIP small businesses and independent retailers. It was a good run while it lasted.