By Max Singh
COVID-19 has left its mark on every facet of our lives and, by extension, the Canadian economy. The disruption to how we live, work and interact with each other caught the entire world off guard, and the road to economic recovery will be bumpy for Canada.
“Economist predicts the Canadian economy isn’t poised to return to pre-pandemic levels before 2022. Although manufacturing has shown their models still work, other sectors, notably retail, are undergoing a new period of growth and innovation.”
Even with steady employment gains for six months-running, hundreds of thousands of Canadians remain locked out of the labor market as cases of COVID-19 rise in major centers. One-in-four Canadians are now long-term unemployed, which speaks to a persistent impact from this Pandemic that will leave scars on labor markets for years to come.
The hardest-hit sectors resulting from the Pandemic are —restaurants, hotels, and conference centers, for example —which will only pick up sustainably after the virus’s full risk has faded.
Economists predict the Canadian economy isn’t poised to return to pre-pandemic levels before 2022. Although manufacturing has shown their models still work, other sectors, notably retail, are undergoing a new growth and innovation period. The federal government’s 2020-21 Fall Economic Statement focused on the more immediate challenge of supporting firms and households trying to manage the transition. As recovery takes form, the government will likely shift its focus to structural conditions of stimulus, from economic infrastructure to a transformation of social supports, from childcare to eldercare.
With virus containment now a firm probability with the rolling out of various vaccines, it is clear the elimination of the Pandemic and economic recovery are inextricably linked. Economic drivers for the Canadian economy are as follows:
Exports, growth, and investment
Investment in technology, remote work, and online sales will continue to be significant trends for Canadian businesses’ progression and growth in 2021. In general, economic growth is expected to be higher in provinces that were hit hardest by the financial fallout of COVID-19 in 2020. Despite a softening of exports in 2020, timber, softwood lumber, raw materials, and aggregates are expected to recover in 2021 – albeit slowly. New investment in the automotive manufacturing sector is expected to boost Ontario as the province’s manufacturing sector.
Oil and gas exports
The slow burn recovery of energy demand—and a massive shock to global oil prices in 2020—continue to drag down Canadian energy exports. As it is, the energy sector faces an uncertain future. Renewable power prices are falling, and governments globally have committed to billions in green investments to decarbonize economic activity. This has been a challenging year for the Canadian oil sector. Nevertheless, the International Energy Agency expects oil prices to be high enough to return Canadian production to near 2019 levels—a 20% increase from the low point in spring 2020 during the Pandemic height.
Tourism, Hotels, Hospitality, and Travel
International tourism and travel to Canada remain limited by border closures and quarantine requirements. The 2020 tourist season was non-existent. Some service sectors—significantly those dependent on tourism, such as accommodation and food services—will experience a second challenging year’s pandemic laws tighten, shift, and change. The Pandemic is expected to limit their activities during the first quarter before partially recovering as spring 2021 returns. The distribution of an effective vaccine will dictate their prospects for the end of the year. Canada’s services sector isn’t just domestically focused; hard-hit industries like accommodation and food services are suffering in part from a lack of tourism. Recovery in these export sectors will depend on not just Canadian but global success in containing COVID.
Canada relies on newcomers—mostly highly-skilled ones—to help drive the recovery, bolster domestic demand, and maintain our working-age population. Virus fears and border closures brought immigration to an abrupt halt in the spring. The immigration system showed considerable resilience, keeping the flow of temporary foreign workers in agriculture and allowing international students accommodations. But overall, 2020 sharply reduced both permanent and temporary immigration, one of the critical drivers of Canadian population growth. In response, Ottawa dramatically increased targets for new permanent residents over the next three years to make up for the shortfall.
Tech sector and E-Commerce
Tech continues to be one of the brightest stars in the Canadian economy and actually burned more brilliantly in the Pandemic. More people stayed at home or worked from home using a gamut of technology aids for entertainment and tools such as Zoom for work. The Tech sector continues to grow for the foreseeable future. The proportion of goods and services we buy through e-commerce exploded amid the early lockdowns, and e-commerce spending remained much higher than before the Pandemic hit, suggesting a new habit had been hardwired. It is also more critical than ever for businesses, large and small, to up their game in a virtual marketplace. That will mean investments in new technologies and reskilling. Overall, the technology sector is projected to grow by 1.1% in 2020 and then by 2.2% in 2021.
The Pandemic changed not just where we buy but what we buy. With homes now doing double duty as workplaces, city dwellers in condos look more at single-family homes and townhomes for larger living spaces and backyards. That’s driven up prices in smaller communities and for larger detached homes. It’s also increased rental options and lowered rents in cities. Higher prices for single-family homes are negative for these buyers but are giving a wealth boost to existing homeowners. Realtors report surprisingly brisk sales during the Pandemic- a trend that is set to continue as buyer confidence improves.
Small businesses are the backbone of Canada’s economy, representing 42% of GDP and 48% of new jobs. Small companies have been caught off guard by the abrupt transition to a virtual economy due to the COVID 19 Pandemic and are now adapting.
This crisis could be when these small firms make the jump, repositioning themselves for a post-pandemic economy more virtual and mobile than we’ve seen. The Bank of Canada slashed its key interest rate designed to lower the yield curve’s longer-term interest rates, reducing borrowing costs on fixed-rate mortgages, and longer-term business loans.
In the years ahead, advanced technologies will play an even more significant role in the economy than they did in the crisis when online work and learning became as normal as online shopping and gaming. Canada will need a new generation of skills, and a new kind of social infrastructure, to enable the entire economy to thrive in a more distributed, less centralized world, where almost anything can be done anywhere at any time. Looking ahead to 2021, Canada should see a favorable export environment, and consumption should be supported by a resilient labor market and continued household support programs.
If mass distribution of a vaccine begins mid-year, we could see economic growth of 4.5% or more and a return to our pre-crisis GDP fairly early in 2022. While doom and gloom marked 2020. I t is seen that 2021 will be the years we reset to a happier, better time.
Sources: Statistics Canada/ Immigration Refugees and Citizenship Canada/ RBC Economics/ Canada Federal Government/Canadian Economic outlook. REMAX realty report.