Canada’s economy will struggle to weather second wave of virus
The dreaded second wave. We don’t want to even mention it, let alone plan for it, since the thought of having to go back inside and away from others is just so reprehensible right now.
After all, we’re getting a taste of the good old days, with some patios reopening and some in-person gatherings once again allowed under certain circumstances. Some jobs are coming back, some stores are up and running, and the new cases of COVID-19 are on a downward path.
But we need to plan, because mitigating the damage to our health and to our economy right now could make all the difference. New number crunching by the Organization for Economic Co-operation and Development shows us why.
The not-as-bad news, according to the new projections, is that the second wave will probably not be nearly as bad for the economy as the first time around. We’ve learned a thing or two about how to handle the virus, and the economists at the OECD expect that total shutdowns of the economy won’t be necessary if and when the second wave ripples over us.
But the ugly side is, a second wave will take us further and further away from a full return to prosperity. The same industries that were hit hard the first time will suffer the most, and they’re in no shape to handle a second hit. And vulnerable populations will once again carry the load.
Regardless, the recovery will be long and uneven. Are we ready for this? Not quite. The OECD foresees a deep plunge in global growth in 2020, followed by a
pickup in activity in 2021 and an eventual climb back to normal. Unemployment is rampant around the world, worse in Europe than in North America. But Canada is no exception to the trend, and in fact is especially fragile because low and volatile commodity prices are undermining our economy at the same time.
It’s worse if there is a “double hit” of the virus. The OECD’s second-wave scenario is for a return of COVID-19 outbreaks this fall, and even if governments rush in with more income support and measures to keep businesses afloat, more jobs will disappear, growth will be halted and the recovery will be pushed down the road even further.
Either way, for Canada, it means no recovery to a preCOVID level of economic activity until 2022. It’s a dismal portrait that is counterintuitive to the mood of the reopening we see around us.
Scotiabank has used its own banking data to look at realtime transactions and take the temperature of what looks to be a turnaround in the economy. March and April were awful by any measure as the economy shut down. But by the end of May and beginning of June, the bank’s customers were using their credit cards and debit cards at a higher level than a year earlier.
Purchases of digital goods and computer equipment has surged. And the free fall that beset many industries in early spring seems to have come to an end.
But chief economist Jean-François Perrault warns against a recovery “euphoria.” Credit card usage went up as consumers shunned cash because of fear of the virus. They bought equipment to work from home, but 90 per cent of those who lost their jobs are still not back at work, and there were many other things that they didn’t buy at all. The end of a free fall in some industries is only the end of the beginning. It’s not recovery.
So one of the biggest economic problems with a second wave of the virus is that we will have to confront it in a weakened state.
Our savings have dwindled, many companies are already on the brink, and unemployment will be widespread for many more months. Even virus-proof industries that are gearing back up right now probably won’t be at full capacity by the fall.
At the same time, federal and provincial governments have run up the deficit to record amounts, raising questions about whether they will hesitate to cushion the blow of a second bout of coronavirus as aggressively as they did this spring.
The federal government put a time limit on tens of billions of dollars’ worth of income supports with the now-outdated belief that we would recover quickly and government spending could return to normal.
Officials are redesigning the programs right this moment to take the longer stretch of the crisis into account, and they insist “we’ve got your backs” as the economic effects drag on.
But they also need to be prepared for round two, with all the costs that new outbreaks will bring and the flexibility they will require. That means a willingness to redesign income supports repeatedly for specific areas of the country or specific industries where the virus rears its head.
More immediately, it means dramatically ramping up testing and tracing, so any outbreak can be contained right away before it spreads, costs lives and prompts another widespread confinement, taking the economy down with it.
Early on in the pandemic, Canada created extra hospital capacity and then ramped up its production of personal protective equipment. Those steps will prove useful for a second round, but it also needs to come with quick testing for any person or company that needs it.
We’re not there yet.