THE 2020 SHUTDOWN: HOW DEEP IS THE ECONOMIC HOLE? - June 2020 Q2 2020 BRITISH COLUMBIA ECONOMIC REVIEW AND OUTLOOK
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THE 2020 SHUTDOWN: HOW DEEP IS THE ECONOMIC HOLE? Q2 2020 BRITISH COLUMBIA ECONOMIC REVIEW AND OUTLOOK June 2020 Ken Peacock Chief Economist and Vice President Dr. David Williams Vice President, Policy
B.C. ECONOMIC
REVIEW AND OUTLOOK
Q2 2020 (JUNE)
THE 2020 SHUTDOWN: HOW DEEP IS THE ECONOMIC HOLE?
H I GHL I G HTS
•Global GDP is expected to decline by 8% in 2020 and to case scenario of no further outbreaks, Canadian GDP would
rise by 2.8% in 2021 assuming a second pandemic wave later decline by 8% in 2020 and rise by 3.9% in 2021. Canada’s
this year, according to OECD forecasts. Under an equally economy will not recover 2019 levels of activity during the
likely, best-case scenario of no further outbreaks, global GDP forecast horizon under either scenario. Risks are evenly
would decline by 6% in 2020 and rise by 5.2% in 2021. World weighted.
economic activity is likely to remain depressed for some
time. Activity will not recover to pre-pandemic levels by the •The B.C. economy is forecast to shrink by 7.8% in 2020, a
end of 2021 under either OECD scenario. Risks are evenly bit worse than our preliminary estimate for a 7.3% decline
weighted. done back in March.
•Canada tottered into 2020 with a debt and immigration- •In 2021 the provincial economy will expand by 4.8%. This
reliant model of economic growth that was yielding low is a strong growth number by historic standards but comes
unemployment but little to no growth in GDP per person, in the wake of a very steep downturn and only results in
labour productivity or real wages. Canada’s economy was the B.C. economy regaining just over half of the economic
the world’s 6th most indebted with national debt at 301% of output lost in 2020.
GDP in 2019.
•Job losses are concerning. Since February the number of
•Canada’s economy has fallen into a very deep hole. Exiting people working in the province has plummeted by roughly
from it will be uncertain and challenging given the paucity 350,000. The unemployment rate nearly tripled in three
of ready catalysts for private sector GDP generation months and now sits around 13%.
and job growth, the limited set of remaining options for
•The domestic consumer economy will emerge from its
macroeconomic policy stimuli, the overhang of private and
temporary freeze, but far from unscathed. As the shutdown
public debt, and the (necessary) ongoing public health
is lifted, employment will rebound significantly. But the
restrictions that virtually rule out a consumer-led recovery.
process will be uneven and slow. Many businesses will
•Canadian GDP is projected to decline by 9.4% in 2020 and not re-open and several tens of thousands of jobs will be
rise by 1.5% in 2021 assuming a second COVID-19 wave permanently lost.
occurs later this year. Under the OECD’s equally likely best-
PANDEMICS ARE 2019, according to recent studies of declared a pandemic on March 11,
PRECEDENTED the SARS-CoV-2 time to most recent 2020.
common ancestor (tMRCA). There
COVID-19 is the 8th largest pandemic To date, COVID-19 has infected
were 27 novel coronavirus cases in
event with more than 100,000 global around 8.3 million people and killed
China as at 15 December, 60 cases
fatalities since 1889 and the 16th about 450,000 globally. There
as at 20 December, and 266 cases as
since the Black Death of 1347-1352 have been 101,000 infections and
at 31 December 2019 when China’s
(Table 1). The pandemic is estimated over 8,300 fatalities in Canada, the
government reported the outbreak
to have originated in China between vast majority of which have been
to the World Health Organization
about 6 October and 11 December concentrated in Quebec and Ontario.
(WHO). Ten weeks later, the WHO
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B.C. ECONOMIC
REVIEW AND OUTLOOK Q2 2020 (JUNE)
Those two provinces account for
87% of cases and 95% of deaths TA BL E 1: F I F TE E N P R E - COV I D L A R G E PA N D E M I C E V E N TS
W I TH AT L E AST 1 0 0,0 0 0 FATA L I TI E S
in Canada. In B.C., there have been
2,756 cases and 168 fatalities as of
Event Start End Deaths
mid-June — 3% of Canadian cases
and 2% of Canadian fatalities. Black Death 1347 1352 75,000,000
Italian Plague 1623 1632 280,000
WORLDWIDE SOCIAL Great Plague of Sevilla 1647 1652 2,000,000
LOCKDOWNS AND Great Plague of London 1665 1666 100,000
ECONOMIC SHUTDOWNS
ARE UNPRECEDENTED Great Plague of Marseille 1720 1722 100,000
While pandemics are precedented – First Asia Europe Cholera Pandemic 1816 1826 100,000
most disease outbreaks in the past Second Asia Europe Cholera Pandemic 1829 1851 100,000
century have been mitigated through
Russia Cholera Pandemic 1852 1860 1,000,000
early containment and treatment of
affected and vulnerable populations Global Flu Pandemic 1889 1890 1,000,000
– the worldwide social lockdowns Sixth Cholera Pandemic 1899 1923 800,000
and economic shutdowns associated
with COVID-19 are unprecedented. Encephalitis Lethargica Pandemic 1915 1926 1,500,000
Most countries are facing multiple, Spanish Flu 1918 1920 100,000,000
simultaneous negative shocks not
Asian Flu 1957 1958 2,000,000
only to public health, but also to
consumer demand, industrial activity, Hong Kong Flu 1968 1969 1,000,000
business investment, commodity H1N1 Pandemic 2009 2009 203,000
prices, credit markets, and
financial markets. According to the Source: Jorda et. al 2020.
International Labour Organisation
(ILO), full or partial lockdown
measures have affected around 81% TA BL E 2 : G LO B A L E CO N O MI C F O R E C AST
( A N N UA L % C H A N G E I N R E A L G DP )
of the world’s workforce, or almost
2.7 billion workers (Figure 1).
Global GDP is projected to decline
Scenario #1
Scenario #2
Second wave later
by 8% in 2020 and rise by 2.8% in Region 2019 No second wave
in 2020
2021 assuming a second pandemic
wave later this year, according to the 2020f 2021f 2020f 2021f
latest outlook from the Organization
for Economic Cooperation and World 2.7 -7.6 2.8 -6.0 5.2
Development (OECD). Under an
U.S. 2.3 -8.5 1.9 -7.3 4.1
equally likely, best-case scenario of
no further outbreaks, global GDP Canada 1.6 -9.4 1.5 -8.0 3.9
would decline by 6% in 2020 and rise
by 5.2% in 2021 (see Table 2 and link Euro area 1.3 -11.5 3.5 -9.1 6.5
to chart). World economic activity
will not return to 2019 levels during Japan 0.7 -7.3 -0.5 -6.0 2.1
the forecast horizon under either China 6.1 -3.7 4.5 -2.6 6.8
OECD scenario. Risks are evenly
balanced and the path to recovery is
Source: OECD Economic Outlook.
highly uncertain.
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REVIEW AND OUTLOOK Q2 2020 (JUNE)
F IG URE 1: EMP LOYM EN T I N COU N T R I ES W I T H WO R K P L AC E C LOS U R E S
Source: ILO.
F IG URE 2: AS A RESOU R C E-BASED ECON OM Y, C A N A DA H AS B E E N H A MM E R E D BY CO MM O D I TY P RI CE SHO CKS
Index: Jan 2019 = 100 Bank of Canada commodity price indices, weekly
160
140
120
100
80
60 Commodity price index, total Energy Metals Forestry Agriculture
40
20
Jan-19 Mar-19 May-19 Jul-19 Sep-19 Nov-19 Jan-20 Mar-20 May-20
Source: Bank of Canada.
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REVIEW AND OUTLOOK Q2 2020 (JUNE)
F IG URE 3: QUEBEC A N D B.C . L A BOU R M A R KE TS H AV E B E E N H I T H A R D E ST BY COV I D -1 9
Unemployment rate (%) and three-month change (percentage points),
pp or %
seasonally adjusted, by province
18
16
14
12
10
8
6
4
2
0
NL NS PEI NB MB SK Canada ON AB BC QC
Percentage point change in unemployment rate, February to May 2020 Unemployment rate (%), May 2020
Source: Statistics Canada.
CANADA'S RICKETY On a per capita basis, Canadian real by: February’s #ShutDownCanada
ECONOMY HAS FALLEN INTO GDP growth was non-existent at 0.0% protests, paralyzing major transport
A VERY DEEP HOLE y/y in 2019. Real business investment and export infrastructure across
per worker was lower in 2019 than in the country for several weeks; a
Canada’s economy tottered into 2020
2008. Labour productivity growth in precipitous collapse in commodity
with federal policymakers hoping
2019 made its weakest contribution prices in March, especially energy
that a lift in global growth would be
to overall GDP growth since the prices, due to contracting global
enough to see the economy past its
1980s, helping to explain why, despite demand and a Saudi Arabia-Russia
unaddressed structural fragilities.
low unemployment, there has been oil price war (Figure 2); and the
The gamble failed. While Canada’s
persistently weak growth in real total economic shutdown to combat the
pre-pandemic economy was close
employee compensation over the COVID-19 pandemic.
to full employment, GDP growth was
past business cycle. And for all this,
almost entirely reliant on expanding Since February, Canada has lost a
Canada’s pre-pandemic economy
the absolute size of the labour force staggering one-in-seven jobs — that
was the 6th most indebted in the
through unprecedented temporary is, 14% of all jobs, or 2.7 million out of
world, with national debt/GDP of
and permanent immigration. Such 19.2 million jobs nationally. Quebec
301% in 2019, of which private credit
an economic strategy cannot — and has been hit the hardest, with the
(corporations and households) was
demonstrably did not — deliver gains unemployment rate jumping 9.2
214% of GDP and public credit was
in GDP per person or income per percentage points to 13.7% in May
85% of GDP.
person. (Figure 3). B.C.’s labour market was
Then in the first quarter of 2020, the second most affected. Although
Canada’s economy was hammered B.C.’s approach to shutting down
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REVIEW AND OUTLOOK Q2 2020 (JUNE)
its economy was more targeted levels by the end of 2021. respond. Restaurants will only be
than in other jurisdictions, and operating at 50% capacity. The
Canada’s economy has fallen into
although it was far more successful Canada-U.S. border remains closed,
a very deep hole. Exiting it will be
at suppressing COVID-19, B.C.’s and international air travel will be
challenging given the paucity of
greater exposure to hard-hit sectors restricted until a vaccine or effective
catalysts for private sector GDP
(especially accommodation and food treatment is available. This suggests
generation and job growth, the
services, and wholesale and retail that B.C.’s air transportation industry,
limited set of remaining options
trade) resulted in the unemployment international tourism and business/
for macroeconomic policy stimuli,
rate jumping 8.4 percentage points to convention travel and large audience-
the overhang of private and public
13.4% in May. Overall, from February attended sporting events will stay
debt, and the ongoing public health
to May, Ontario lost 1.2 million jobs, closed for much or even all of the
restrictions that rule out a fulsome
Quebec lost 590,000, B.C. lost year.
consumer-led recovery.
353,000 and Alberta lost 333,000 In early April, we published
jobs. preliminary estimates of the potential
In an unusual step, the Bank of B.C. has done an exemplary impact of the COVID-19 pandemic on
Canada passed on providing the B.C. economy, focusing on output
job of containing and
detailed economic forecasts in its or GDP. At the time, we assumed
April Monetary Policy Report. The
managing the Coronavirus. a global recession was “imminent
IMF (April) and OECD (June) have But the fallout from closing or already underway” and that “the
meanwhile continued to produce non-essential services, as widespread lockdown and closing of
forecasts. The OECD projects that jurisdictions around the non-essential B.C. businesses [would
Canada’s GDP will decline by 9.4% world have done, has been be] maintained for at least eight
in 2020 and rise by 1.5% in 2021 weeks.” Under our initial baseline
substantial and has dragged
assuming a second COVID-19 wave scenario, we expected “bars and
the province into a deep
later this year. Under the equally restaurants [would be] permitted
likely, best-case scenario of no further economic hole. to open in the second half of 2020,
significant outbreaks, Canadian GDP with new social-distancing and
would decline by 8% in 2020 and rise cleaning guidelines in place”. Our
by 3.9% in 2021. Risk levels are high initial estimates also “assume[d] that
B.C. FACES THE SAME
and evenly balanced. international travel will remain heavily
ECONOMIC CHALLENGES
restrained for five or six months…”
The level of Canadian economic
B.C. has done an exemplary job
activity is likely to remain depressed Here we update our previous
of containing and managing the
for several years. Due to lack of forecast. The closures and
Coronavirus. But the fallout from
income, many households and re-opening have unfolded largely
closing non-essential services, as
businesses could struggle with pre- as expected. We are only making a
jurisdictions around the world have
existing credit and lease obligations. modest downward adjustment to our
done, has been substantial and has
Credit defaults, foreclosures, and 2020 projection. The more difficult
dragged the province into a deep
insolvencies could rise significantly question is what 2021 will look like.
economic hole. Under the provincial
later this year and into 2021 as
reopening plan unveiled a few weeks Our framework for estimating the
operating costs and losses mount,
ago, retail, food services, personal depth of the recession and the
courts reopen, and the extraordinary
services, and non-emergency recovery path is as follows. The
but finite taxpayer support tapers
medical services are permitted domestic consumer economy will
off. Under either of the OECD’s
to open. This is welcome news emerge from its temporary freeze,
scenarios, the national unemployment
and means economic activity and but far from unscathed. As the
rate is expected to remain high at
jobs will come back. But the virus economy re-opens there will be a
around 8.9-9.4% in 2020 and 8-9% in
will continue to weigh on much of sizable employment rebound. But
2021. Under either scenario, neither
the consumer-facing economy. It the process will be uneven and
Canadian GDP nor employment are
is unclear how consumers will slow, with some important sectors
expected to return to pre-pandemic
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REVIEW AND OUTLOOK Q2 2020 (JUNE)
Based on our updated of the province’s output in 2020. ADDITIONAL CONTEXT FOR
industry-by-industry With re-opening underway both B.C.'S GROWTH OUTLOOK
in B.C. and some other economies,
projections, we now expect As reflected in Figure 4, the expected
we believe the gloomier scenario is
B.C.’s economy to shrink by unlikely.
7.8% contraction in provincial gross
-7.8% in 2020. domestic product (GDP) is more
In 2021 as the consumer facing than three times the size of the
economy recovers more fully and the downturn B.C. experienced in 2009.
global economy emerges from the The 4.8% expansion penciled in for
remaining closed through the rest of
deepest downturn in 100 years, we 2021 would normally be considered
the year. Many businesses will not re-
expect real GDP in B.C. to expand by very robust. But the context is
open and several tens of thousands
4.8%. important. A recovery in 2021 will
of jobs will be permanently lost.
The risks, however, are on the follow an unusually steep decline the
One of the main reasons we are year before. This means some of the
downside. A second wave of the
projecting a deep recession is expansion we expect next year will
virus will almost certainly emerge.
because as the domestic economy simply reflect a rebound from the
Its severity and economic impact,
struggles to regain its footing, B.C.’s plunge in output recorded in 2020
however, are uncertain. Now that
export sector will be slammed by and an uptick in activity in economic
tests are readily available, systems
the steep global recession that is sectors hit hardest by the business
in place, equipment stockpiled, and
taking hold around the world. The closures.
public awareness and knowledge
drop in external demand will hammer
vastly improved, there is a greater It is also important to recognize that
the B.C. economy at the same time
capacity to manage and contain while it is a strong pace of growth,
as domestically oriented sectors
outbreaks, which suggests that a 5% increase in GDP in 2021 only
struggle to recover. The varying
future closures can be more targeted. results in B.C. regaining just over half
and widespread closures across
Alternatively, a very aggressive of 2020’s lost output (Figure 5). It
countries, supply chain interruptions,
outbreak could prompt another will take another 3% expansion in
international travel restrictions,
round of widespread closures 2022 before the province’s economy
and the likelihood of a second
and a deeper global downturn, in returns to its 2019 level of output.
wave — all of these developments
which case we would trim another If a serious second wave emerges
are conspiring to dampen and
percentage point from our growth in the fall, pulling growth lower,
elongate the recovery process. As
projections for both 2020 and 2021. economic output will not retrace its
activity in the export sector weakens,
secondary effects will weigh on parts pre-pandemic level until after 2022.
of the domestic services economy.
The latter will also be challenged TA BL E 3 : B .C . E CO N O M I C O U TLO O K
( A N N UA L % C H A N G E U N L E SS OTH E RW I S E I N D I C AT ED)
by reduced in-migration and fewer
foreign students at B.C. education
2018 2019 2020f 2021f
institutions.
Based on our updated industry- Real GDP 3.8 2.8 -7.8 4.8
by-industry projections, we now Employment 1.1 2.6 -8.3 1.0
expect B.C.’s economy to shrink by
7.8% in 2020, a bit worse than our Unemployment rate (%) 4.7 4.7 10.0 8.5
preliminary estimate of 7.3%. Our
Housing Starts (000 units) 41.0 45.0 32.0 37.0
March projection also included
an alternative scenario in which Retail sales 2.1 0.7 -1.5 1.0
lockdowns were maintained through
B.C. CPI 2.7 2.3 1.2 1.5
most of the summer and the global
economy failed to recover, resulting f - forecast
in a contraction of more than 10% Sources: Statistics Canada and BC Stats; BCBC for forecasts.
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REVIEW AND OUTLOOK Q2 2020 (JUNE)
F IG URE 4 : A DECLI N E I N ECON OM I C OU T P U T S E V E R A L TI ME S L A R G E R TH A N TH E G R E AT R E C E SS I ON
B.C. real GDP growth, %
5
4 4.8
3
2
1
0
-1
-2 -2.4
-3
-4
-5
-6
-7 -7.8
-8
07 08 09 10 11 12 13 14 15 16 17 18 19e 20f 21f
Sources: Statistics Canada, Provincial Economic Accounts and BCBC for forecasts.
F IG URE 5: B.C.'S E CON OM I C OU T P U T R EM A I N S W E L L B E LOW 2 01 9 P E A K
B.C. real GDP, billions $
260
250
baseline forecast
240
weaker scenario
230
220
210
200
190
180
170
05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20f 21f
Sources: Statistics Canada, Provincial Economic Accounts and BCBC for forecasts.
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REVIEW AND OUTLOOK Q2 2020 (JUNE)
EXPORTS A DRAG ON “community” immunity is achieved. In
GROWTH AS DOMESTIC our industry-by-industry projections,
Restoring the labour market
ECONOMY REOPENS we estimate a 50% drop in the
economic output (GDP) of the to health will take many
As a small trade-dependent
accommodation sector this year. months if not years.
economy, B.C. will be affected
Domestic tourism activity will soon
by the global slowdown and the
resume, with hotels and resorts
Canadian recession detailed in
and parks scheduled to re-open in the most recent Labour Force Survey
the first section. Early in the year
June. But even if British Columbians (LFS) showed a gain of 43,000 jobs,
transport infrastructure blockades
realign their vacation budgets to indicating some re-hiring occurred
and virus-related manufacturing
domestic travel and there is a large when phase two of the province’s
interruptions in China curtailed B.C.’s
jump in domestic tourism, it will re-opening plan came into effect.
exports. Now weaker demand and
not be enough to offset the losses The positive May figure may also
pricing for most of the province’s
which stem from halting international reflect the fact that the federal wage
key export products is pulling
tourism. For 2021 we see a gradual subsidy program is now prompting
merchandise exports lower. Over the
recovery in the tourism sector, albeit some companies to recalibrate lay-
first four months of the year, total
from a disastrously low starting point. off plans and recall some workers.
merchandise exports are down 15%
compared to the same period last The film and television production While positive, the May job gain
year. Exports to China are down industry is another example of follows a completely unprecedented
almost 19% while the value of B.C. an “exportable” service that has loss of nearly 400,000 jobs over
merchandise shipped to South Korea recently stalled. It too was one the previous two months. Restoring
has tumbled 30%. of the province’s fastest growing the labour market to health will take
and substantial export industries many months if not years.
The downturn in export sales will
in the past decade. However, the Somewhat counterintuitively, B.C.’s
accelerate in the months ahead as
sector was shuttered in March. The unemployment rate increased in
the global recession deepens. The
reopening of domestic film and May, even though employment
prospects for exports are better
television production in June or July rose sharply. The reason is that
in 2021, as the global economy
will be a welcome step on the bumpy the announced re-opening of some
recovers.
recovery path, but the international consumer services prompted more
The COVID-19 crisis and global segment is much larger and is also people to re-join the labour force.
recession are also pinching B.C.’s the source of valuable international The unemployment rate jumped to
service exports, which are an export earnings. Presumably, a 13.4% in May; in February, it stood at
important part of the province’s full re-start of all segments of the 5%.
overall export base.1 Many service industry depends on the border
industries were growth leaders but reopening and the implementation The job losses that have occurred
have now been shuttered or severely of processes and protocols to keep to date are overwhelmingly
impacted by the crisis. Tourism is an workers safe. concentrated in the private sector.
example. Until just a few months ago, Of the total 353,000 net B.C. jobs
it was among the province’s leading lost since February, 335,000, or
export engines. But today the STAGGERING JOB LOSSES 95%, have been in the private
industry is staring at a catastrophic sector. Young people have also been
Three months of labour market data
downturn. disproportionately affected. Total
have been produced since non-
employment is currently down 14%
As detailed in B.C.’s re-opening plan, essential B.C. businesses were closed,
since February, but the number
international tourism, conventions, allowing a somewhat clearer picture
of jobs for people aged 15-24 has
concerts, and live audience of job impacts. In March, total
plummeted 34%. Meanwhile, the
professional sports will not re-start employment fell by 132,000. Not
unemployment rate for this younger
until either widespread vaccination, surprisingly, job losses accelerated
cohort has soared to 29%.
broad successful treatments, or in April, doubling to 264,000. Then
1
Services make up 40-45% of the value of B.C.’s total exports, depending on the year.
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REVIEW AND OUTLOOK Q2 2020 (JUNE)
F IG URE 6: STEEP D R OP I N EX P OR TS TO T HE U. S .
B.C. merchandise exports to U.S., $billons B.C. merchandise exports, rest of world, $ billions
2.2 2.2
2.1 2.1
2.0 2.0
1.9 1.9
1.8 1.8
1.7 1.7
1.6 1.6
1.5 1.5
1.4 1.4
3 month centred moving average 3 month centred moving average
1.3 seasonally adjusted 1.3
seasonally adjusted
1.2 1.2
Jan 15 Jan 16 Jan 17 Jan 18 Jan 19 Jan 20 Jan 15 Jan 16 Jan 17 Jan 18 Jan 19 Jan 20
Source: B.C. Stats. Latest data April 2020, seasonally adjusted.
F IG URE 7: VERY STEEP J OB LOSSES, BU T SOM E R E - H I R I N G A L R E A DY E V I DE N T
B.C. employment 15 years and over, 000s
2700
2600
2500
2400
2300
2200
2100 B.C. employment at level last seen in
2010 – but more rehiring ahead
2000
1900
1800
02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20
Source: Statistics Canada, Labour Force Survey. Table 14-10-0287-01. Latest: May 2020. Seasonally adjusted.
Where Leaders Meet to Unlock BC’s Full Potential | www.bcbc.com 9B.C. ECONOMIC
REVIEW AND OUTLOOK Q2 2020 (JUNE)
F IG URE 8: N O HISTOR I C A L P R EC EN D EN T F OR R E C E N T E M P LOY M E N T DR O P
Change in B.C. employment over periods shown, 000s Change in B.C. employment over periods shown, %
0 0
-50 -36.7 -2 -1.4%
-100 -72.1 -4 -3.2%
-109.3
-150 -6
-200 -8
-8.2%
-250 -10
-300 -12
-350 -14
-353.2 -13.9%
-400 -16
1981 Recession Great Recession Weak job COVID-19 job 1981 Recession Great Weak job COVID-19 job
June 1981- June 2008- market losses -- June 1981- Recession market losses --
Nov 1982 Mar 2009 May 2019- Feb-May 2020 Nov 1982 June 2008- May 2019- Feb-May 2020
Feb 2020 Mar 2009 Feb 2020
Source: Statistics Canada, Labour Force Survey. Table 14-10-0087-01. Seasonally adjusted.
F IG URE 9: JOB LOSSES SP R EA D AC R OSS A L L AG E G R O U P S , B U T YO U N G E R WO R K E R S H I T DI S P R O PO RT I O NAT ELY
B.C. employment by age cohorts, B.C. employment by age cohorts,
change February-April and April-May, 000s % change February-April and April-May
50 10
17.6 17.7 3.7 3.5
8.0 5
1.2
0
0
-5
-50
-10
-63.1
-15 -11.0
-100 -12.9
Feb-April -20
-123.5 Feb-April
-150
April-May -25
April-May
-30
-200
-35
-209.9
-40 -36.2
-250
15-24 25-54 55 and over 15-24 25-54 55 and over
Source: Statistics Canada, Labour Force Survey. Table 14-10-0287-01. Seasonally adjusted.
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REVIEW AND OUTLOOK Q2 2020 (JUNE)
F IG URE 10: RECORD U N EM P LOYM EN T R AT E F O R YO U N G E R P E O P L E
B.C. unemployment rates by age cohorts, %
25
15 to 24 years
25 to 54 years
20
55 years and over
15
10
5
0
76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 16 18 20
Source: Statistics Canada, Labour Force Survey. Table 14-10-0287-01. Latest: May 2020. Seasonally adjusted. 3-month average up to 2019.
F IG URE 11: SOME RECOV ERY I N HA R D HI T SEC TO R S
Change in B.C. employment by industry, 000s
20
0
-20
-40
-60
March & April May
-80
-100
-120
Accomm- Whole- Const- Info, Other Business, Health Educa- Transport Finance, Mfg. Public Ag- Forestry, Prof.,
odation sale ruction culture services building care & tional & ins. & admin. riculture mining, sci. &
& & retail & (personal) other social services ware- Real quarrying, technical
food recreation serv. assistance housing estate oil/gas serv
Source: Statistics Canada, Labour Force Survey. Table: 14-10-0355-01.
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REVIEW AND OUTLOOK Q2 2020 (JUNE)
F IG URE 12: RETAIL SA L ES P LU N G E...BI G G ER D E C L I N E CO MI N G
B.C. retail sales SA, millions $
7500
Thousands
7000
retail sales*
6500
3 month moving average
6000
5500
5000
12 13 14 15 16 17 18 19 20
Source: Statistics Canada . Table: 20-10-0008-01. Latest: March 2020. * Seasonally adjusted.
F IG URE 13: IMPACT VA R I ES AC R OSS SEG M EN TS O F R E TA I L
B.C. March retail sales, y/y % change
30
20
10
0
-10
-20
-30
Retail trade - Total excl. Motor vehicle Gasoline Furniture & Building General Electronics & Grocery
total grocery & and parts stations home material and merchandise appliance stores
beverage dealers furnishings garden stores stores
stores stores equipment
and supplies
dealers
Source: Statistics Canada, Labour Force Survey. Table: 14-10-0355-01.
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REVIEW AND OUTLOOK Q2 2020 (JUNE)
F IG URE 14 : N ON -RESI D EN T I A L P ER M I TS HEA D I N G LOW E R B E F O R E C R I S I S
B.C. non-residential building permits, SA, millions $
1000
Thousands
900
permits SA
800
700 6-month moving average
600
500
400
300
200
100
12 13 14 15 16 17 18 19 20
Source: Statistics Canada, Table: 34-10-0066-01. Latest: April 2020. SA = Seasonally adjusted.
JOB LOSSES ARE MANY JOBS SHOULD COME re-hiring and job creation will be
WIDESPREAD WITH RETAIL BACK choppy and weak. Restructuring will
AND HOSPITALITY HARD-HIT With the re-opening of non-essential
also weigh on job growth over the
forecast horizon. In an environment
The biggest job losses have services, plenty of jobs will come
where consumer spending is
been in the accommodation and back. But the employment recovery
soft, companies in the retail and
foodservices industry, where the path will be uneven and slow-going.
foodservices sectors will be looking
combined March/April decline In the early stages of re-opening
to cut costs by scaling back the size
totaled 112,000. In May, the sector monthly gains will be large, likely
and number of outlets. Starbuck’s
managed to regain 12,000 positions. substantially outpacing May’s
recent announcement that it is
Retail (and wholesale) trade and advance on at least a couple of
closing 200 stores across Canada is
personal services have also been occasions. But the pace of rehiring
an example of what is certain to be a
hard hit. Combined, these three is expected to be quite slow. As
larger trend. Adding it all up, in our
service sectors account for more long as international travel remains
judgement B.C. will be fortunate to
than half of all provincial job losses closed, restaurants operate at just
regain half of the 400,000 lost jobs
so far in 2020. The information and half capacity, other consumer-facing
between February and April by the
culture sector, which includes movie businesses operate with some
end of the year.
production as well as theaters, has restrictions in place, and tens of
also suffered substantial job declines. thousands of B.C. businesses fail,
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REVIEW AND OUTLOOK Q2 2020 (JUNE)
RETAIL SALES FALL undergo a period of transformation that immigration will fall sharply
SHARPLY, BUT SOME as the virus accelerates already over the next year or two, builders
SEGMENTS EXPAND existing trends such as the move may temper development plans.
towards online shopping, industry On the other hand, the provincial
The closure of much of the retail
consolidation, and the relative government will probably view this
industry for much of March led to
decline in the number of small as an opportune time to advance
a y/y 5% decline in retail sales in
retailers. plans to increase the number of
that month. When sales data are
purpose-built social and other non-
reported for April, we expect to
market housing units. This year
see a 15% y/y drop, with another RECESSION WILL SLOW economic output in the residential
negative y/y result for May. CONSTRUCTION ACTIVITY construction segment will fall but it
The partially impacted March data The outlook for construction in should rebound in 2021. This year’s
show the motor vehicle and parts B.C. is mixed. On the positive side anticipated downturn also reflects
sector being hardest hit (down construction remained open and thus a temporary pull-back in renovation
nearly 30% y/y). The shift to remote will not have to go through a re-start spending.
working and closures of non- process as in some other provinces.
essential businesses coupled with But even so, 40,000 construction
price declines led to a 22% decrease jobs have been lost since February SLOWER POPULATION
in gas station sales. Furniture stores as activity has been pared back in GROWTH AHEAD AS
also experienced big drops in sales certain parts of the sector. IMMIGRATION SLUMPS
as traffic plummeted. Immigration has long underpinned
B.C. non-residential building permits
Some essential segments of retail, provincial population growth and
have been trending lower for more
however, were kept open. The has become even more significant
than a year. The downward trend
closing of restaurants meant people in recent years. Until the COVID-19
continued into 2020. The value of
had to cook at home. Sales at crisis, Ottawa was still committed
non-residential permits was down
grocery stores surged almost 30% to adding 370,000 new permanent
28% year-to-date through April.
y/y in March, with an even bigger residents in 2020. This would have
Permit values will continue to slide
jump likely in April. Electronics exceeded the record-setting 341,000
as projects are put on hold amid an
and appliance store sales were also immigrants in 2019. The spread
uncertain economic and business
up sharply, as people scrambled of COVID-19 and stringent travel
environment and some companies
to equip their home offices with restrictions, however, effectively
re-assess their capital spending plans.
computers, web cams and other In our industry-by-industry analysis, have shut down immigration. Amid
electronics. ongoing border restrictions, travel-
we have non-residential construction
related health fears, and the global
A broader recovery in retail will GDP contracting by 13% in 2020,
economic downturn, we expect
begin in the summer and through followed by a small decline in 2021.
immigration levels to be down
the end of the year, supported by Boosted by government capital sharply in 2020. A partial recovery
the Canada Emergency Response spending, large engineering and in 2021 will depend in part on the
Benefit (recently extended for infrastructure construction is set to course of the pandemic.
another eight weeks) and other rise. Because it will take time for
government support programs. But Travel restrictions and border
projects to ramp up, we expect much
ongoing physical distancing and closures stopped new immigrants
of the lift to show up in 2021.
fear of contracting the virus will coming to Canada in mid-March.
The residential construction industry Immigrants are processed only
alter shopping patterns and keep
is harder to gauge. One of the main with permanent residency or study
some consumers away from all
drivers of demand for homes is permits approved before March
but essential retail outlets. Massive
population growth, which in B.C.’s 18. In March, permanent-resident
job losses will also leave many
case is due largely to international additions were 30% below last year’s
households struggling to rebuild
immigration. Given the likelihood level.2 If these restrictions last all
finances. The retail sector will
2
RBC Economics, “COVID-19 Derails Canadian Immigration” (May 29, 2020).
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REVIEW AND OUTLOOK Q2 2020 (JUNE)
summer, RBC economics expects some sectors, and probable changes
170,000 fewer permanent residents in consumer preferences and
will enter the country in 2020 than behaviour.
planned. This represents a 45% For both Canada and B.C., the
reduction. 2020 downturn is shaping up to
In B.C. permanent immigration rose be the deepest in 100 years. As
from ~38,000 in 2017 to ~50,000 the economy lurches and sputters,
last year. A 45% decline would it will become evident that many
mean 22,000 fewer immigrants than businesses face higher operating
moved to B.C. last year. costs owing to reduced occupancy,
enhanced cleaning and service
Temporary foreign workers (TFWs)
requirements and necessary safety-
are exempt from travel entry
restrictions. But not surprisingly few related costs for staff and clients.
Additional costs change the math
are coming. The number of TFWs
and will impact the ability of some
entering Canada was down 35%
firms to survive. The same trends
y/y in March. In addition to fears
also make it more difficult for new
of contracting the virus, the fact
businesses to form and create jobs.
that TFWs are required to isolate in
Canada for 14 days before starting Looking ahead, government will need
work is a deterrent. While Canada to do everything it can to support
is offering $1,500 per worker to new company creation and help
help buffer these costs, similar existing firms remain in business in
quarantines may exist in their home the post-crisis world.
countries, thus altering the financial
incentives to travel internationally for
work.
Importantly for B.C., fewer foreign
students are entering on study CO-AUTHORED BY
visas. Student entries were down
Ken Peacock,
45% y/y in March. Fall enrolments of
foreign students are almost certain
Chief Economist
to be down markedly given ongoing and Vice President
travel restrictions. To some extent
the rapid and broad shift to online
David Williams, DPhil,
learning may result in a permanent Vice President of Policy
move to remote learning.
SUMMARY THOUGHTS
An important characteristic of this
strange recession is the magnitude
of job losses. Getting people back
to work is going to be essential.
But the recovery will be hampered
by partial reopenings, physical
distancing rules that throw sand in
the gears of business operations in
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