It is hard to believe that the B.C. government’s 2020 budget was tabled just three short months ago. Since then, the world has been tipped upside down by the still-spreading coronavirus pandemic. Globally, millions of people have been infected, many hundreds of thousands have died, and normal social and economic life has been profoundly disrupted as governments have mandated business shut downs and imposed stay-at-home and social distancing orders on shell-shocked populations.
As for the economic consequences, COVID-19 has triggered the worst global downturn in modern times. When the year began, forecasters expected the world economy to grow by more than 3% (after-inflation) in 2020; today, global output is on track to decrease by at least 3% — the biggest one-year drop in economic activity since the 1930s.
Closer to home, B.C. has been on the receiving end of the same pandemic-driven economic carnage as many other jurisdictions across North America, Europe and Asia. March and April saw combined job losses of 400,000, by far the worst two-month employment decline in the province’s history. Consumer spending has been hammered by the closure of most consumer-facing businesses, real estate markets have gone quiet, and key B.C. export industries have been hit by the onset of a world-wide recession, lower commodity prices, and the wholesale collapse of international travel and tourism.
The Business Council now sees the B.C. economy contracting by 8-10% in 2020, a dramatic change from our forecast of growth of slightly more than 2% back in January. Canada is set to suffer a quantitatively similar reversal of economic fortunes. As for government finances, the small operating surplus projected by B.C. Finance Minister Carole James in her February budget has suddenly mutated into a fiscal deficit that BCBC pegs at $7-10 billion in 2020-21. This reflects both the additional spending and tax deferrals announced by the province to deal with the pandemic and support workers, households and businesses, as well as the negative impact of a sharp recession on provincial revenues. The fiscal picture at the national level is far bleaker: instead of a planned deficit of $25-30 billion this year, Ottawa appears to be on track to report a previously unfathomable torrent of red ink amounting to at least $250 billion this year (equivalent to around 12% of national GDP).
To get a sense of the dramatically changed landscape since mid-February, the accompanying table shows key economic and fiscal assumptions underpinning the 2020 B.C. budget, alongside our updated estimates for the same indicators and metrics as of mid-May. It is a story of two starkly different worlds: one pre-COVID-19, the other with COVID-19.
From today’s vantage point, it is certain that 2020 will rank as the worst year for B.C.’s economy and job market in a century. What is less clear is how quickly and durably the economy will rebound as the province moves to ease business and social restrictions and consumers, businesses and citizens adjust to the “new normal” of living with a highly contagious virus that is expected to remain active for many more months if not years to come.