The historic response to Canada’s economic crisis by Justin Trudeau’s government is only just beginning.
A half-million jobless claims filed this week, representing 2.5% of the labor force, is a shocking signal of how deep a rut Canada’s economy is in as entire industries shut down in response to the coronavirus pandemic. The new worry is Covid-19 could spread through remote barracks-like camps that house oil workers, adding another blow to a key sector.
The sudden rise in layoffs suggests that even after unveiling plans to inject hundreds of billions in direct aid and liquidity into the economy, Trudeau and other policy makers will need to do more. Another interest rate cut by the Bank of Canada and a bailout of the airline industry and energy sector could materialize in coming days.
The tourism industry is the first outright casualty as Canada instructs citizens to practice “social distancing.” The world’s longest undefended border is also now closed to non-essential traffic.
“It has been like an atomic bomb,” said Mandy Farmer, who took over what is now an eight-hotel, 750-bed chain in British Columbia from her father. “The travel industry is completely dead here. There is no business on the books.”
In less than three weeks, both the Bank of Canada and Trudeau’s governing Liberal Party have pushed out a series of measures to aid businesses and individuals who face serious financial pressures from the halt in economic activity. But so far it doesn’t appear to be enough as Canada barrels toward a recession.
“There are going to be large contractions in economic activity. That’s unavoidable when you’re shutting down portions of the economy,” Beata Caranci, chief economist at Toronto-Dominion Bank, said in an interview. “We’re presuming we get back into business operations — not maybe normal but just a resumption of activity — by late April or May. If that doesn’t happen, we have a different story.”
The Bank of Canada has cut interest rates by a full percentage point this month and announced a slew of programs designed to prevent clogs in the financial system’s plumbing.
On the fiscal side, Trudeau unveiled an aid package Wednesday worth C$82 billion ($57 billion), or 3% of Canada’s economy, in an effort to soften the blow. Both the central bank and the government have repeatedly said they’re able and willing to do more.
|What Bloomberg’s Economists Say|
“Canada’s economy, which was already experiencing slow growth before the coronavirus hit, is tipping into recession as global governments work to stave off the pandemic. Bloomberg Economics’ base case is a contraction in excess of 7% annualized in the second quarter — a plunge that rivals the worst quarter during the financial crisis. A double-digit decline is easily in reach.”
— Andrew Husby, Bloomberg Economics
Read the full report here
The oil sector is a high priority, with the industry also grappling with a global price war sparked by the breakdown of talks between Russia, Saudi Arabia and other OPEC+ producers. The price of a barrel of heavy Alberta crude hit the lowest on record this week.
The country’s airline industry may need billions in aid to stay afloat. The Canadian government is also trying to help the struggling manufacturing sector, with Trudeau announcing plans to help factories shift gears to begin making desperately-needed medical supplies.
“You may see an expansion in possible financial support for business,” Brett House, deputy chief economist at Bank of Nova Scotia, said by email.
In addition to lowering interest rates to 0.75%, the Bank of Canada has injected cash into the financial markets by launching a series of new facilities to acquire securities from banks — tools they can continue to use even after they bring borrowing costs to near zero.
“They also have the option in the future to continue to expand asset purchases and to enlarge credit facilities on more generous terms,” House said. “Monetary policy is never completely out of options.”
For business owners like Farmer, the third-generation British Columbia hotelier, the speed of the collapse has been unbelievable. She hasn’t been ordered to shut down completely yet but has begun laying off her 250 staff and said a 50% reduction in her workforce is possible.
“I am fighting right now to have a company for these people to come back to. All of our efforts are on cash flow,” the owner of Accent Inns and Hotel Zed said by phone.
Farmer’s biggest ask from the federal and provincial governments is to move quickly to provide her employees with unemployment benefits and potentially defer her property taxes.
“I’m so scared my bank will not help me through this,” she said, even though she says she runs a tight financial ship. “In the good times they tell you they’re your partner, and in the bad times they’ll call your loans.”
— With assistance by Divya Balji, and Jacqueline Thorpe
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