Canadian economy eases back to life

Despite signs of a gentle rebound, economists say COVID troubles will linger

There are signs the Canadian economy is recovering from its worst year in six decades, but the havoc COVID-19 has wreaked will be with us for a while, economists say.

The size of the national economy grew 2.3 per cent in the fourth quarter, ending the worst year in recorded history on an up note, according to numbers from Statistics Canada Tuesday. Gross Domestic Product — the cumulative size of the Canadian economy — dropped by 5.2 per cent in 2020, the worst fall since similar statistics started being kept in 1961.

But amid the gentle rebound, there are still signs of potential trouble on the horizon. One of the reasons the fourth quarter bounce wasn’t even higher? Lacklustre numbers in non-housing construction.

That’s another piece of evidence that a big chunk of the exodus from downtown office towers originally caused by COVID

safety rules might end up becoming permanent, argues Arlene Kish, chief Canadian economist at IHS Markit, an economic think tank.

Many companies that normally pack downtown office towers across the country are in the midst of determining when they’ll come back, and whether or not their presence will be as prominent.

That, in turn, makes builders gun-shy about adding to the problem by building new towers, Kish said.

“A lot of companies are really re-evaluating their footprint, so new office space isn’t getting built,” said Kish.

And just as builders are reluctant to add to the amount of office space on the market, they’re just as hesitant about building new retail space, amid an uncertain outlook for a retail sector that’s been hammered hard by COVID-related closings, many of them permanent.

“There’s already a glut of retail space because of so many closures, so new retail space isn’t getting built either,” said Kish.

Pedro Antunes, chief economist at the Conference Board of Canada, says the true scale of the flight from downtowns won’t be known for months or years.

“It’s not like everyone’s leases are all going to be up at the same time. Could some companies try to buy out their leases early? Yes. But some will just let them run out,” said Antunes.

Already, the reshaping of downtown economies is taking place bit by bit, and company by company, Antunes said.

“Companies are already asking people if they want to return.

“But even if people want to come back to the office, it might not be as many, or as often, as before,” said Antunes.

And that spells trouble, not just for the companies that own the office towers, but also for the businesses that have served the workers in those towers, including everything from restaurants to small retail shops, and services like hair salons.

“Cities will bounce back. People will still want to live and work in cities. But there are going to be some structural changes, and it’s going to take some time,” said Antunes.

The hit to the downtown economy is felt most keenly by people who had been working in the service sector, whether it’s the workers in the lobby coffee shop, the hairdresser on a nearby side street, or the people who whip up lunch in the food court, said David Macdonald, senior economist at the Canadian Centre for Policy Alternatives.

Without those towers packed, it’s hard for the companies and people who support them to keep going, said Macdonald.

“The service sectors are really continuing to lag behind,” Macdonald said.

While one bright spot came when Statistics Canada said household disposable income actually grew 10 per cent in 2020, Macdonald said that might not be as much of a boon to the economy this year as people have been assuming.

Once COVID-related restrictions are loosened, people might spend that money in ways that won’t bolster this country’s economics fortunes, Macdonald said.

“If people suddenly go on vacation to the U.S. or the Caribbean, that’s not helping our economy. If they decide to buy a TV, but it was made in China, that boosts China’s GDP numbers,” he said.