Recovery on the horizon
Experts cautiously optimistic economy will show growth in next few months
The pandemic’s effect on the Canadian economy has been harrowing — and a full recovery may be a long time coming — but after hitting bottom in late April and early May, most economists agree that the country is already on the mend, with promising growth in the months to come.
Early positive indicators include upticks in home and auto sales and the simple fact that more businesses are being permitted to reopen and people are getting back outside — and back to work.
“I think it will take time to recover, but the fiscal and monetary authorities will have thrown everything they’ve got at this, so I do expect that the worst is behind us,” said Sherry Cooper, chief economist, Dominion Lending Centres.
Ontario entered Stage 1 of its reopening on May 19, allowing all construction to resume as well as permitting retail stores with street-front entrances to reopen, among other things. Businesses offering personal services such as hair salons remain closed, as do restaurants that don’t offer takeout or delivery.
“In this case, the drop in activity was so dramatic that you can actually see the signs of recovery with your own naked eye, so more vehicles on the road and more foot traffic in retail locations tell you that the economy is doing a bit better,” said Avery Shenfeld, chief economist at CIBC.
“I think it’s very obvious to most Ontarians that there’s a bit more going on these days than there was in the darkest days of April.”
Construction and manufacturing have more or less bounced back, as well as some retail, economists say, while sectors that rely on large gatherings such as concert promoters, sporting events, dining and tourism will likely suffer for years.
Economists say people should still brace for some dismal figures in the official numbers as the economy recovers — including the unemployment rate for May, which Statistics Canada said Friday is a record-high 13.7 per cent.
Canada’s gross domestic product for the second quarter ending in June will also appear dire due to the economic havoc in April, but is expected to climb for the rest of 2020.
“We had a weak March, we expect an even weaker April and we expect pickup in May and June,” said Craig Wright,
chief economist at RBC. “The worst is behind us and the current environment looks much better,” Wright said.
Douglas Porter, chief economist at BMO, sees promise in the strengthening markets.
“When you look at oil prices, the Canadian dollar, stock markets, all are definitely in recovery mode,” Porter said. “It doesn’t mean we’re going to be back to100 per cent, but we’ll be well off from April relatively soon. That’s what a lot of early indications are telling us.”
The Canadian National Railway Co. reported a four per cent increase in volume in the last week of May as manufacturing and construction sectors reopened. As well, housing and car sales surged in May, with unit home sales up 55 per cent in May over April, and lightvehicle sales more than doubling from 45,833 in April to 113,833 in May.
Analyst Dennis DesRosiers of DesRosiers Automotive Consultants said May’s numbers represent some cautious optimism as “the first tentative shoots of recovery spring up from a badly damaged marketplace.”
But as Ontario and the rest of the country enters recovery mode, there’s still much uncertainty about the coronavirus, which could very well send the economy into another tailspin.
Ontario, along with Quebec, continues to represent the bulk of new daily COVID-19 cases in Canada, with the GTA representing about three-quarters of the province’s new cases each day.
Public health experts have warned of a second wave of the virus. In Ontario’s case, specifically, concerns have long been raised about the slow rollout of its testing strategy, its lack of an aggressive contact tracing system, and the need for more personal protective equipment for workplaces.
It’s what leads Angella MacEwen, senior economist at the Canadian Union of Public Employees, to describe it as a “risky and precarious” recovery.
“If you think about what’s required for people to go back to work, they need to have child care if they have kids, so that’s a site of potential spread. They need to maybe take the bus to get to work if they’re low-wage and they can’t afford a car; that’s another site of potential spread. And they’re coming back home and bringing it to their families, which is really where it spreads a lot,” she said.
“Also just the psychology of it — it’s hard for people to have been shut down for so long, and now they’re going back to work and maybe feeling it’s safe or that it’s worth the risk, and not taking the precautions that they need to take.”
She highlighted that most provinces, including Ontario, still do not have legislated paid sick day provisions for workers, which could lead to new outbreaks in workplaces that don’t offer paid sick leave.
MacEwen also expressed concern that even as the recovery slowly begins to ramp up, women especially may be negatively impacted due to lack of child care and ongoing closures of schools.
“What I’m really concerned about is that women tend to make less money than men, so for families with two parents, a male and a female, it’s going to make the most economic sense for the mother to stay home and take care of the kids,” she said.
“I’m really worried we’re going to see some permanent job losses for mothers of young children.”
Other signs of recovery may include the number of people coming off CERB. David Macdonald, senior economist with the Canadian Centre for Policy Alternatives, analyzed publicly available numbers of people using the Canada Emergency Response Benefit — the $2,000-a-month payment from the federal government to people out of work due to the pandemic — and found that the number of active recipients peaked on May 14 at just under 8 million people.
By June 1, he found the number of active recipients was down to about 6.3 million people.
“What it means for a lot of workers is that people are absolutely going back to work — it looks like in the neighbourhood of 1.5 to 1.7 million people have gone back to work in the past week or two — and they’re inadequately protected,” Macdonald said.
“We have no national proactive testing of high-risk workplaces. We don’t even have it in long-term-care homes, where we know it’s a massive issue.”
Most economists say a full recovery is not likely until mid-2022.
As the country further reopens, the question remains whether Ontario, and more specifically Toronto, will remain behind.
Already, some provinces that have managed to get their COVID-19 caseload under control have been able to move faster than Ontario.
British Columbia permitted the reopening of restaurants and hair and nail salons in midMay, with restrictions. The same happened this week in Prince Edward Island — which hasn’t had a new COVID-19 case since April — as the province entered the third phase of its reopening.
Premier Doug Ford recently said he’s open to examining regional approaches at reopening the province’s economy further, which could leave the GTA lagging behind other parts of Ontario.
“It’ll depend on the virus. That’s the big unknown and that’s not an economic question,” Cooper said.