The Impact of Coronavirus Pandemic on the Canadian Economy

The impact of coronavirus on the Canadian economy is likely to remain even after it has been brought under control, domestically. At the time of writing, the Coronavirus pandemic has infected close to 2 million people of the world population and Canada has reported 24,383 confirmed Coronavirus cases and 717 deaths.

The containment of the spread of coronavirus and strengthening health systems globally are the top priorities of the world leaders. The Prime Minister of Canada, Justin Trudeau has implemented travel restrictions, social distancing, and declarations of states of emergency and closures of non-essential businesses to contain the spread of the virus. Its economic impact can be as bad as the recession of global financial crises or worse. 

Rising Unemployment Rate

In the last week of March, there is a record spike in job losses, about 580,000 Canadians applied for unemployment benefits. Since the initial stage of the lockdown in the country, more than 2 million Canadians have applied for jobless claims i.e. one in every ten workers. 

Bank of Nova Scotia estimates that Gross Domestic Product (GDP) of Canada will contract by 4.1 percent in 2020. That would be the biggest one-year contraction of Canada’s economy since 1933.

In productivity hour terms, Canada has lost more hours during the COVID-19 pandemic than during the 1998 Ice Storm.  The Labour Force Survey began measuring hours lost in 1997 and the closest comparison to the sudden decline in economic activity and employment observed in March 2020 has been the 1998 Ice Storm.

Plummeting Oil Prices 

Canada's oil and gas sector accounts for about 10% of its total GDP. With the ongoing price war between Russia and Saudi Arabia and the pressure from the Coronavirus pandemic, oil prices have plummeted. Oil prices have lost as much as a third of their value in March, from about $36 for a barrel of in January to just $5. This marks the biggest daily route since the 1991 Gulf War.

Travel and Tourism 

This pandemic is likely to cost the Americas; Canada, the United States, and Mexico up to $570 billion combined, with nearly seven million jobs in Travel & Tourism at risk, according to World Travel and Tourism Council. Canada's tourism industry contributed approximately 38.96 billion CAD to the economy and created over 1.8 million jobs in 2018. 

This rapid increase in unemployment has shocked the Canadian economy from the existing crises caused by the spread of the virus. Air Canada alone had to let go of over 5,100 employees due to the coronavirus outbreak. As per the latest survey by Angus Reid Institute, two-in-five Canadian households report having experienced work loss since the outbreak began and another one-in-five anticipate work loss.

Stimulus Package 

Canada announced open-ended support to tackle the crisis which will go down in history as the largest government intervention in the economy during peacetime, since World War II. The Canadian government has pledged to spend  8.4 percent of GDP, $193 billion CAD to withstand the impact of the deadly virus. 

Key highlights of Canada’s COVID-19 Economic Response Plan

• 75% wage subsidy for employers: The Canada Emergency Wage Subsidy (CEWS) bolsters employers who have suffered a drop in gross revenues of at least 15 percent in March, and 30 percent in April and May. The subsidy covers 75% of employee's wages, capped at $847 per week.
• Canada Child Benefit (CCB): Increasing the child benefit up to up to an extra $300 per child through the CCB for 2019-20.
• Canada Emergency Response Benefit (CERB): Providing a taxable benefit of $2,000 a month for up to 4 months to eligible workers who have lost their income due to COVID-19.
• Canada Emergency Business Account: Loans guaranteed and funded by the Government of Canada, available to small businesses and not-for-profit organizations to access capital of up to to $40,000 in interest-free loans. 

Extension of Tax Filing Timelines

The federal government is allowing all businesses to defer income tax payment without any interest or penalties, until after August 31, 2020, the payment of any income tax amounts that are due from March 18 and before September 2020. 

The spending also includes the increase in existing GST tax credits and allowing businesses, including self-employed individuals, to defer payments until June 30, 2020 payments of the Federal Goods & Services Tax (GST) and Harmonized Sales Tax (HST), as well as customs duty, owing on their imports.

This measure is expected to provide up to $30 billion in cash flow and liquidity assistance to businesses and self-employed individuals over the course of three months.

Bank of Canada

The stimulus package is a coordinated action between the Canadian Government and the Bank of Canada. The Bank of Canada has lowered interest rates, increased accessibility to credit by providing liquidity support for financial institutions. Key highlights

• The Bank of Canada has cut its interest rates by 0.25% in a bid to shield the economy from coronavirus fallout. The last time the rate was this low was the global financial crisis of 2008. 
• Expanded the list of eligible collateral for Term Repo operations to the full range of eligible collateral for the Standing Liquidity Facility (SLF), under which loans are allowed to the eligible financial institutions in need of temporary liquidity support.
• Announced for the Provincial Money Market Purchase (PMMP) program - an asset purchase facility that will acquire provincially-issued money market securities.

The Bank of Canada also strongly urged retailers to continue accepting cash to ensure people have access to the goods and services they need after many retailers including Liquor Control Boards announced that they will no longer be accepting cash and asked customers to pay with credit or debit cards in a bid to slow down the spread of COVID-19. Also read, the rise of contactless payment during COVID-19 

How to send money abroad from Canada during a lockdown? 

Go online! 

In fact sending money online is the cheapest, fastest, safest, and the most convenient way of sending money abroad.

Road to Recovery 

Canadian economic recovery depends heavily on US recovery. Canada’s biggest trading partner and the member of NAFTA, the United States has also been severely impacted by the ongoing outbreak. The US has reported 560,433 confirmed cases that have claimed 22,115 lives. The rapid spread of COVID-19 in the US poses a subsequent economic fallout for Canada due to its trade dependency on the U.S. 

“When America sneezes, Canada catches a cold.”

As open economy countries have a large dependence on trade for the growth of their economy, it will be influenced largely by the drop in demand of countries that are still grappling with the crisis. U.S. goods and services trade with Canada totaled an estimated $718.5 billion in 2018, according to the data by the Office of  United States Trade Representative. 

Due to the nature of the virus, only essential goods and services are being traded globally. The top export categories from Canada to the US are mineral fuels, vehicles, and plastics., which are deemed non-essential for the most part and have impacted Canada’s economic standing. So, even if Canada is able to withstand the health implication of the virus, if the neighbor continues being ill, the economy overall is likely to be in recession for a long time.

The containment of the spread of coronavirus and strengthening health systems globally are the top priorities of the world leaders in the globalized economy. Countries with open economies like Canada will likely see an extended impact from the supply and demand effects of the pandemic.

Canadian Imperial Bank of Commerce(CIBC) forecasts the economy will contract at an annual rate of 3.0 percent in the second quarter and 3.4 percent in the third quarter, before picking up recovery and returning to growth in the quarter of 2020.