BDC Expects Canada’s Economy To Begin Re-Opening In May
MONTREAL – A survey by the Business Development Bank of Canada (BDC) found while 90 percent of small and medium-sized enterprises (SMEs) are negatively impacted by COVID-19, the country’s economy should begin to recover by the end of this year as the progressive reopening of businesses are expected to start in May.
In the fourth online survey the BDC has done in relation to the pandemic, Chief Economist Pierre Cléroux says the number of businesses who said they’re negatively affected has increased from around 40 percent.
“The biggest part is the lack of demand. We thought that the supply chain would be affected. But this is not the biggest issue,” he said.
SMEs’ top concerns remain the ability to keep employees on payroll, repay debts and keep the business open.
“But people seem to be a little less worried. The level of confidence is slightly increasing. The government has introduced a lot of different measures, so hopefully this is going to improve as time goes on.”
Some of the federal government funding to support small and medium-sized businesses is channeled through BDC in the form of loans. Cléroux says the billions of dollars that have been announced by federal and provincial governments are needed to not only help people and businesses in need right now, it will also ease the recession for Canada.
“When you give people money because they need it, they’re going to use it, they’re going to spend it and that’s going to help the economy,” he said.
With the lowest debt-to-GDP ratio among the G7 countries, Canada is well-positioned to roll out these measures, he said. But the country’s debt will increase once the pandemic is over, “so we’ll have to find ways to reduce our debt again.”
BDC’s outlook on the country’s economic recovery from the impact of COVID-19 includes a somber second quarter. But there’s hope.
“We believe that in the third quarter, in the summer, the recovery is going to start, because the lockdown is mostly going to be over,” Cléroux said. “At the end of the year, we should see the economy really come back strongly. We believe that’s going to be progressive but it’s going to accelerate by the end of the year.”
Looking at European countries that are further along with the crisis, and China, Cléroux said there seems to be a sort of consensus on what kinds of businesses open when.
Manufacturing and construction generally come first, followed by small retailers, large retailers, some tourism, and finally, large gatherings and events.
This doesn’t mean Canadian jurisdictions would take similar steps, but Cléroux says it won’t be a surprise if they do.
Borders are likely to remain closed to non-essential travel for a longer period of time. That would mostly impact the tourism sector “because goods are traveling right now across Canada and to the U.S. The restriction is really on people,” he said.
“I think in May, you’re going to see a lot of restrictions going down across the country…A lot of different regions have the virus under control, so I think in May you’re going to see the economy re-open and probably a month later, you’re going to see restaurants and bars re-open as well, maybe with some restrictions,” he said.
Taking notes from China, which was the first to grapple with the virus, the survey said it showed strong immediate recovery. Its manufacturing industry is rebounding faster than the services industry; almost all (99 percent) of its large businesses are back up and running; most (77 percent) of small and medium-sized businesses have resumed operations, and consumer sentiment rebounded in March.
But consumer demand won’t return to normal levels right away, Cleroux said. People might be cautious to return to restaurants, bars and public transport, for example, or would avoid going too often.
“It takes a lot more time for consumers to spend as much money as before for two reasons: they’re cautious about their health,” Cleroux said. “Second, of course, a lot of people lost money, so it takes time for them to spend as much money as before. The recovery is going to be in steps. Some part of the economy is going to reopen…but it’s going to take sometime before everything is reopened.”
Atlantic Canadian provinces with a low number of cases like New Brunswick could be among the first to re-open their economies, he said, albeit with some restrictions. P.E.I. announced Wednesday that it will begin the re-opening process in May.
Large provinces in Canada are also discussing opening up some regions before the others.
“I think that makes sense and I think that’s probably what we’re going to see,” he said.
Other parts of Canada, like Alberta and Newfoundland, also face severe shocks from the drop in oil prices due to a global price war and unprecedented lows for demand. Cléroux doesn’t think this is “the end of oil,” but with a very high level of oversupply of oil reserves, “it’s going to take some time before we see prices go back to normal.”