The global economy is facing major shocks right now, particularly the coronavirus pandemic, and the drop in oil prices. Canada’s economy and businesses are not immune to them, said Business of Development Bank of Canada’s (BDC) VP research and chief economist Pierre Cléroux.
“There’s no doubt that the virus is going to have an impact on the economy. We don’t know to which extent, it’s going to depend how long this situation is going to last and how much business is going to be closing, but this is going to slow down the economy,” he said. “The oil price is…going to have a bigger impact on provinces producing oil like we saw in the past. But obviously, the fact that we have the two shocks at the same time is going to have a bigger impact.”
Provinces like Alberta, Newfoundland and Saskacthewan will feel the hit from the oil price war between Saudi Arabia and Russia in addition to the impact of coronavirus.
“We don’t know how long this price war is going to last,” Cléroux said. “They can keep this price war for months.”
He said the price, which hovers around $32 per barrel on U.S. WTI Crude index as of Friday afternoon, is “unsustainable.”
But the impact of coronavirus is what businesses in the Maritimes should watch for.
With the wave of cancellations of mass gatherings across the country, those in the event industry are already feeling the hit. The tourism sector is expected to be “more affected than others,” Cléroux said, as cruise lines suspend operations and governments urge residents not to travel abroad.
Cléroux said the Canadian and American economy were doing well in February, but things have changed very quickly. It’s not too late to brace for impact.
“We are at the beginning,” he said. “I think the next month for Canada will be the most difficult one, the critical one.”
Cléroux said seeing the improvements in China, and taking lessons from the SARS outbreak in 2002, the economic slowdown due to coronavirus will likely not last for very long, but the critical months will be “a bit painful.”
He recommends consumers to buy local, and for business, here are four things Cléroux recommends to prepare for the impact of these shocks:
1) Minimize risk in your supply chain
“Everybody should contact their suppliers to make sure that they are in a position to continue to supply the products or the service [offered] by the business,” Cleroux said.
2) Understand your clients
“It’s important to understand your client confidence at this point…The situation is going to be quite different from one sector to another, so people shouldn’t base their strategy on the stock market, they should really base their strategy on the client perspective,” he said.
3) Protect your cashflow
Cleroux said in similar events in the past, such as during the SARS outbreak, many businesses have difficulty maintaining their cash flow.
“Most of the time, your revenue is going down, your costs are increasing, so sometimes it’s a squeeze between the two. It’s very important to protect your cash flow,” Cleroux said.
4) Have a contingency plan
Whether your business is small or large, Cleroux said “everybody who has employees should have an idea of how they’re going to keep their workplace safe.” This could include things like banning travel and allowing people to work from home.
“Everybody should really have a plan. Even if they don’t use it today, they should have an idea of the steps they’re going to take during this period of time,” he said.
Businesses can also access resources on BDC’s website on how to manage operations or reach out to the advisory team whose mandate is to help companies figure out their strategy.