The 2020 Shutdown: How Deep is the Economic Hole?
2 Minute Brief
While pandemics are precedented, worldwide social lockdowns and economic shutdowns are not. Both the B.C. and Canadian economies have been hard-hit by the closure of non-essential businesses to mitigate the spread of COVID-19. As the provincial and national economies struggle to emerge from their temporary freeze, the global recession will be a drag on all-important export industries.
The World
Under a best-case scenario, global GDP declines by 6% in 2020 and rises by 5.2% in 2021. But if there is a second pandemic wave later this year global GDP would likely decline by 8% in 2020, according to a recent OECD forecast. A second wave would also see a much more modest upturn of 2.8% in 2021.
Canada
In either scenario, the demand for Canadian exports will fall sharply. Canada tottered into 2020 with a debt and immigration reliant model of economic growth. This model will be difficult to restart in the post pandemic world, especially considering the depth of the economic hole Canada has fallen into. Emerging from it will be uncertain and challenging given the scarcity of catalysts for private sector GDP generation and job growth.
Under the OECD’s scenario of no further outbreaks, Canadian GDP would decline by 8% in 2020 and rise by 3.9% in 2021. Canadian GDP is projected to decline by 9.4% in 2020 and rise by just 1.5% in 2021 if a second COVID-19 wave occurs later this year. Canada’s GDP and employment levels will not recover 2019 levels of activity by the end of 2021 under either scenario.
British Columbia
Turning to B.C., we expect the provincial economy to shrink by 7.8% in 2020, a bit worse than our preliminary estimate for a 7.3% decline released back in March. In 2021, we forecast the provincial economy will expand by 4.8%. This is a strong growth number by historic standards, but comes in the wake of a very steep downturn and will only result in B.C. regaining just over half of the economic output lost in 2020.
The magnitude of job losses is especially concerning. Since February, the number of people working in the province has plummeted by roughly 350,000. B.C.’s greater exposure to hard-hit sectors (especially accommodation and food services, and wholesale and retail trade) resulted in the unemployment rate nearly tripling in three months and now sits around 13%. As the shutdown is lifted, employment will rebound significantly. But the process will be uneven and slow. Many businesses will not re-open and several tens of thousands of jobs will be permanently lost.
Looking Ahead
For both Canada and B.C., the 2020 downturn is shaping up to be the deepest in 100 years. The recovery will be hampered by partial re-openings, physical distancing rules that throw sand in the gears of business operations in some sectors, and probable changes in consumer preferences and behaviour. As the economy lurches and sputters, it will become evident that many businesses face higher operating costs, resulting in additional closures. The same trends also make it more difficult for new businesses to form and create jobs. Looking ahead, federal and provincial governments will need to do everything they can to support new company creation and help existing firms remain in business, and expand, in the post-crisis world.