Economy changed during pandemic: RBC
A report released by the Royal Bank of Canada on Wednesday suggests that not all industry sectors will come out of the COVID-19 pandemic equally and, according to RBC senior vice president John Stackhouse, the same could be said about the regions.
The RBC Economics report, Navigating 2021, suggests that the COVID-19 pandemic is helping to transform the Canadian economy. Just as some industry sectors are moving into a fastmoving period of growth and innovation, there are other parts of the economy built on a “legacy model” may not have the same experience.
In an interview, Stackhouse told me he expects places with a significant tech-oriented economy, such as in Halifax, should come out of the pandemic fairly well. However, the oil and gas sector should have a more difficult time and that doesn’t bode well for the economy of Newfoundland and Labrador, which he described as “challenging.”
The tourism sector, which is very important to the Atlantic Canadian economy, will take a while to make a comeback, according to the report. Much of how the tourism industry performs will depend on the roll out of the COVID19 vaccine, and whether it is able to rebuild the confidence of potential tourists.
“Navigating 2021 will require Canadians to continue to build that decentralized future and rebuild some of the centralized model that remains a powerful driver of innovation, efficiency and diversity,” RBC states in the report.
Reopening of the economy and an unleashing of pent-up demand won’t be enough to bring GDP back to its prepandemic state in the coming year, according to the bank.
The hardest-hit sectors will only pick up in a sustainable way after the virus’s full risk has faded, the bank said in a news release.
“The scar tissue of permanent business closures may delay a full recovery until at least 2022,” RBC predicts.
The structural damage, through long-term unemployment and delayed investments, could impede any economic rebound, it states in the report.
“Until public safety and economic confidence are established, large-scale fiscal and monetary stimulus will continue to be needed. Fiscal programs in particular are expected to focus on the pandemic’s lasting damage to displaced workers, small businesses and sectors that rely on the large-scale gathering of people.”
The pandemic has helped to entrench online shopping and
those who have been working from home have learned to adjust to the new way of doing their jobs and may encourage people to move away from the big cities to friendly environments like the Maritimes and still be able to do their work remotely.
“The 2020s is starting to look like a new era of decentralization, built on the backs of digital platforms. The convenience is extraordinary. So too may be the consequences,” Stackhouse was quoted in a news release.
People who are able to seize on the redistribution of economic activity will thrive, while others who will need new skills in order to find new employment will continue to need new kinds of government support, according to the report.
Canadians at the bottom end of the wage scale, many of them women earning less than $800 a week, have experienced a significant portion of the job cuts. Higher earners, one the other hand, have seen their employment opportunities improve during the downturn, it said in the report.
“Some of those who have lost their jobs will opt to go back to school or retrain, but those who could benefit most from upskilling have historically been the least likely to do so. Without a strategy to get lower-wage workers back on the job, the uneven damage of the recession could turn into an uneven recovery,” Stackhouse said in the release.
The federal government will be carrying a heavy debt burden in 2021, which will be slightly mitigated by low interest rates, Stackhouse told me. But the low rates will not last forever and the key will be how government goes about address its debt.
He said the government supports were necessary to keep the economy functioning during the pandemic but it was interesting to note that as governments were helping to subsidize individuals adversely affected by the economic upset created by the pandemic, at the same time Canadians were socking away money in their savings.
To help the economy to recover from the pandemic, Stackhouse said, government will need to encourage Canadians to spend some of their savings, perhaps through tax holidays or events like that to keep money moving, creating economic growth.
But he warned the recovery from the pandemic will be a grind.