National Post (National Edition)
Pre-virus job levels four years out: report
Outlook dire for some industries: Conference Board
The lingering pandemic will flatten and potentially stall Canada's economic recovery into 2021 with nonenergy investment particularly hit, says a new report by the Conference Board of Canada.
Annualized non-energy, non-residential business investment will drop to about $130 billion early next year from almost $150 billion now, the Ottawa-based research organization forecasts.
“With the Canadian economy suffering through its sharpest recession in living memory, firms are likely to delay any major investment decisions until there is more clarity surrounding the pandemic,” the board said.
“Even after the economy emerges from the crisis, the negative effects of the pandemic will linger. Because capacity utilization rates have dipped and demand will take time to fully recover, many firms will have little incentive to invest in additional capacity until well after other sectors of the economy have recovered,” it said.
While the board's forecast of a 6.6 per cent decline in 2020 gross domestic product is better than its earlier prediction of an 8.2 per cent drop and it says a recovery is underway helped by government aid programs, the outlook is dire for some industries.
Closures and declines in household spending will restrain the recovery's pace into mid-2021, board chief economist Pedro Antunes said. Pre-pandemic unemployment levels won't return until 2025, he said.
And while support programs have been crucial to keeping businesses and workers afloat during the pandemic, those programs are intended to be temporary, and are stretching the finances of governments.
The online event at which White's comments came highlighted BMO's commercial banking operations in Canada and the United States, which provide deposit accounts and loans for businesses, as well as various other products and services. BMO's North American commercial banking arm accounts for around 30 per cent of the lender's revenues, White said, in addition to providing referrals to other parts of the bank, such as its capital-markets unit.
“The business recovery will come, and when it does come, we see real opportunities in this business,” White said in response to another analyst question.
BMO — which owns Chicago-based BMO Harris Bank — views its North American commercial banking business as something that sets it apart from other lenders. The bank is eyeing growth of the commercial business in certain sectors, such as Canadian tech, as well as targeting additional market share in certain areas, such as in Texas.
Dave Casper, head of North American commercial banking at BMO, said their discussions with clients are suggesting a faster-than-anticipated recovery. He also said the bank sees itself as having backed more “winners,” and that winners can sense opportunity.
“They're pulling back, they're laying off people, they're managing their expenses, and they're ready to pounce on less-disciplined competitors,” Casper said. “So I see, as this thing turns around, they will be opportunistic, as we will to bank the winners, grow the business.”
Canada's Big Six banks saw their commercial and corporate loan portfolios shrink eight per cent for the three months ended July 31 compared to the previous quarter, as clients paid down lines of credit or tapped stock and bond markets for financing, credit-rating agency DBRS Morningstar said in a September report.
So while BMO management likened its commercial customers to “coiled springs,” according to National Bank Financial analyst Gabriel Dechaine, “these same customers are cutting expenses and capital expenditures in order to weather the downturn, indicating that credit demand is far from normal conditions.”
BMO's commercial lending may have helped profits, but the lender has had to defend the strategy in the face of a COVIDcaused recession that has hammered a number of businesses.
Like other banks during the pandemic, BMO has offered loan-payment deferrals to clients, affecting 13 per cent of its commercial loan portfolio. Around five per cent are still being deferred, BMO says. Moreover, the lender says only about 1.7 per cent of loans on which deferrals have ended are delinquent or in default as of mid-September.
“Our greater weighting to business lending is by design,” said Pat Cronin, the bank's chief risk officer. “And that's founded on our experience that business lending has lower loan-loss rates than consumer lending over long periods of time.”