The COVID-19 pandemic may be the greatest threat to the world in our lifetime.
It’s reasonably certain there will be a global recession, but the duration is unknown. The 2009 recession took nearly a decade to recover from and was particularly difficult for Atlantic Canada, which saw historically low levels of economic growth in the decade that followed, except Prince Edward Island, where steady population increases kept economic growth at national levels.
A global recession is really consumer driven. The shuttering of businesses, the potential of significant private sector job loss and the focus on essential purchases in the short term will slow economic growth, as about two-thirds of GDP growth is related to consumer spending. Consumers are becoming increasingly cautious - major purchases, such as vehicles, houses or vacation travel, will all be postponed until the duration of the crisis is better understood.
There will be a significant and hopefully short-term spike in unemployment, with more than a million new EI applicants in the past week. With the state of emergency, it’s now certain Newfoundland’s unemployment rate (12 per cent currently) will increase in the next month or so. Already, there have been layoffs, which will continue as non-essential businesses close. The energy sector, so important to Newfoundland, will be hard hit by the collapse of oil prices. This will have a particularly negative impact of the province’s fiscal capacity during this trying time, as evidenced by the recent deferral of Nord project by Equinor and its partner Husky Energy.
The federal government’s decision to support those not eligible for employment insurance or paid leave will be helpful but will not replace the spending power lost when people lose employment, further dampening consumer spending.
In Newfoundland, 223,000 were employed in February, with nearly 80 per cent in service jobs (including the public sector), which will be the hardest hit. Global tourism and travel have ground to a halt, negatively impacting this year’s tourism season, even if the duration of the pandemic is shorter than expected. The accommodation and food sectors employ nearly 6,000 people. Restaurants and bars have been virtually shut down, except for takeout. These organizations can’t pay employees while closed. Most small businesses - accounting for 80 per cent of private sector employment - have closed completely or have seen business volumes decline precipitously and are in the same position.
Some sectors should be largely unaffected, such as banking and financial sectors, although hours and methods of operation have already changed. The same is true for utilities which must be considered essential services.
The education sector is essentially closed but employees continue to be fully paid, so the economic impact is minimal, except to determine what actions are needed to complete the academic year for students. The health sector will need more employees - the call to recently retired doctors and nurses is evidence of that need. The food distribution and grocery sector, in general, should be largely unaffected from an employment perspective and will continue to operate as an essential service. The trucking sector is critical to the ongoing supply chain and should be largely unaffected.
Manufacturing’s fate will depend on the products being produced. Personal services (gyms, spas, beauty and hair care) are all being closed for containment purposes. Professional services (legal, accounting, engineering and architectural) should also be mostly unaffected, although they’ll likely be working remotely. The volume of business might decline in the short-term, but these organizations will likely be able to bridge the fall without workforce attrition.
The public sector will be largely unaffected from an employment perspective and continue to be paid, including those who work with the NL Liquor Corporation, which may eventually be closed. In Newfoundland, more than one-in-four of those that work are employed in the public sector.
One sector that will likely disproportionately feel the impact are not-for-profits and churches. These organizations depend heavily on volunteers and the public’s financial support. The supply of volunteers and the capacity to give are both likely to diminish.
It’s important to keep as much of our economy operating as possible. Construction, mining, forestry, and fishing are all important to the provincial economy. Most businesses allowed to remain open will try to do so; some will reduce hours, workforces, or cut wages across the board to protect as many jobs as possible. The unemployment rate will nonetheless increase significantly in the short term.
The duration of the pandemic will determine how much harm is done to the economy. I believe the fundamentals of the economy, absent the virus, are sound for Canada, and once the pandemic has largely passed, our national and provincial economy should return to normal quickly, but there will be casualties to many small- and medium-sized businesses.
It should lead to better strategies to prepare for the next infectious disease. The world had been warned about the potential of a virus like COVID-19 yet was unprepared. Having sufficient stockpiles of medical equipment and supplies should now be mandatory. More stringent global health guidelines for our food system need to be put in place, especially in countries that use wet markets to sell meat. A better understanding of the effectiveness of travel bans is required. Policies for containment of the population need to be updated and likely implemented earlier. Let’s learn from this experience.
Atlantic Canadians have a history of coming together and helping each other out in times of crisis; this time will be no different. It’s what makes this province and our region so special.
Don Mills is the former CEO and owner of Corporate Research Associates (now Narrative Research) and remains active in the business community through various investments. He remains an advocate for change in Atlantic Canada using data for such purposes.
