The COVID-19 pandemic has had very real human, social and economic impacts. History has shown that restricted population mobility during epidemics has a greater economic impact than the illness itself. While the pandemic’s full impact on the Canadian economy is not yet known, its effects are already profound and without precedent. Meanwhile, government intervention at all levels (via massive fiscal and social-distancing measures) to curb the spread of the pandemic during the first, and now second, waves caused an abrupt disruption in business operations, resulting in direct or temporary loss of employment and a shift to working from home (WFH). This prompted a significant spike in job losses and a decline in economic output, the extent of which is yet to be measured.
Amid a second wave and not without controversy (i.e. mounting debt load), the Canadian government has spared no expense to deploy billions in additional financial aid by extending or introducing new programs to support workers and businesses, unveiling an alphabet soup of acronyms (CERB, CESB, LEEFF, BCAP, CEBA, CEWS and CECRA). The government also empowered the Canada Infrastructure Bank to spend $10 billion on infrastructure initiatives (broadband, clean energy and agricultural projects) to fuel economic recovery.
Relief measures introduced or extended in October 2020 included:
- The new Canada Emergency Rent Subsidy (CERS), which would provide rent and mortgage support until June 2021 for qualifying organizations affected by COVID-19. The rent subsidy would be provided directly to tenants, while also providing support to property owners.
- A top-up to CERS of 25% for organizations temporarily shut down by a mandatory public health order issued by a qualifying public health authority.
- The extension of the Canada Emergency Wage Subsidy (CEWS) until June 2021, which would continue to protect jobs by helping businesses keep employees on the payroll and encouraging employers to re-hire their workers.
- An expanded Canada Emergency Business Account (CEBA), which would enable eligible businesses and not-for-profits – that continue to be seriously impacted by the pandemic – to access an interest-free loan of up to $20,000, in addition to the original CEBA loan of $40,000.
The on-again, off-again, on-again restrictions regionally have kept key economic indicators at bay and challenged economists with their outlooks as there is no clear sign what kind of recovery (V- ,U- ,W- ,L- , or K-shaped) will take place from an event for which there is no precedent. Following the economy’s historic 11.5% nose-dive in second-quarter 2020 GDP growth, Oxford Economics estimated a record-setting 10.3% rebound in third-quarter GDP growth. This, however, will slow to 1.5% in the fourth quarter – leaving the economy 3% below its pre-pandemic level. The forecast calls for an overall decline of 5.3% in 2020, while a full recovery is not expected until third-quarter 2021, with annual growth rebounding to 5.9%. An October Consensus Economics survey put mean GDP growth at -5.8% and +4.9% in 2020 and 2021, respectively.
Employment increased by 378,000 (+2.1%) in September, lowering the unemployment rate for the fourth consecutive month to 9%. This compares with 5.6% in February and a record-high 13.7% in May. The labour market has now recovered almost 2.3 million (76%) of the 3 million jobs lost (including temporary layoffs) during March and April. However, renewed restrictions will stall further job gains during the rest of the year with consensus estimates pegging the unemployment rate at 9.5% by year-end 2020 – recovering to 7.8% at year-end 2021.
Meanwhile, the commercial real estate (CRE) sector continues to feel secondary impacts from reduced economic activity and “wait-and-see” disruptions as heightened uncertainty and risk cause occupiers to delay business investment or expansion plans. Consequently, transaction activity of all kinds has been and is likely to remain muted for the duration of the crisis, reflecting practical constraints on deal completion as well as uncertainty about the longer-term market outlook. Industrial and multi-family property types have fared well and continue to be favoured by investors, while office and retail face challenges. The good news: underlying fundamentals are sound and demand for CRE generally remains high, with multiple sources of capital active in the market. The sector stands to benefit from the Bank of Canada’s decision to hold its benchmark interest rate at 0.25% until at least 2023.
The unpredictability of the virus and management of the second wave, along with the wait for wide availability of a viable vaccine, will continue to cast a cloud over not only the Canadian, but global, economies for the near- to medium-term.
History has shown that restricted population mobility during epidemics has a greater economic impact than the illness itself. While the pandemic’s full impact on the Canadian economy is not yet known, its effects are already profound and without precedent.