The great reboot

BDC monthly economic letter, May 2020

After a sudden stop, the economy is headed for a complicated and gradual recovery

Economic upheaval in response to efforts to contain the COVID-19 pandemic came fast: Closures of schools and non-essential businesses, a halt to public events and major changes in the lives of many people.

But while the cessation of activities was rapid, the easing of containment measures will have to be gradual and strategic. Otherwise, we risk going back to square one. This article looks at how other countries are managing their recovery and the latest plans for reopening the Canadian economy.

The battle against COVID-19 in Canada

With the gradual easing of lockdowns, governments will attempt to boost the economy while limiting the increase in new cases of COVID-19 infection.

The progression of infection curves varies between countries and regions with those that have reached a plateau of new infections proceeding with reopening of the economy. For all jurisdictions, it will be important to keep a close eye on the data during reopening because a sharp increase in COVID cases could lead to the reintroduction of containment measures and a delay in the economic recovery.

 

The growth of new cases peaked in most Asian and European countries between mid-March and mid-April. This was also the case in six Canadian provinces: British Columbia, Saskatchewan, Manitoba, New Brunswick, Prince Edward Island and Newfoundland and Labrador.

The other four Canadian provinces, Quebec, Alberta, Ontario and Nova Scotia, still hadn’t reached peak infection levels. That was also the case in other countries, including the U.S., Mexico and Brazil. Japan was facing a resurgence of infections.

Economies restarting in Asia and Europe

Countries in Asia and Europe faced the crisis before us and thus are a few weeks ahead in their efforts to relax containment measures. The evolution of the situation in these countries will serve as a guide for us in the weeks and months to come.

Asia

China was the first to suffer from the spread of the virus but also the first to recover. Masks are now mandatory in public and temperature sensors have been installed at the entrances to stores, factories and restaurants. An app that is mandatory on mobile phones allows for the identification of possible carriers of infection.

While this strict containment model may not be well suited to many other countries, including Canada, it has allowed for relatively fast recovery in China, including a rebound in manufacturing. Still, Chinese consumers have been slow to resume their spending habits. This apparent drop in consumer confidence could pose a challenge for the recovery if it’s replayed in North America.

Gradual easing in Europe

In Europe, most countries have loosened confinement measures more than in Canada. While approaches differ from country to country, they follow a similar pattern.

In general, manufacturing and construction were the first sectors to reopen, even in the hardest-hit countries, such as Italy and Spain.

In retailing, small shops in Germany, Austria and the Czech Republic initially resumed their activities, although with strict health measures in place. Larger shops then gradually reopened their doors. On the other hand, shopping centres remained closed, with the exception of open-air markets.

Although most French people were able to return to work on May 11, bars, restaurants and cafés remained closed. The reopening of these types of establishments was very limited throughout Europe. Austria and Italy are aiming to reopen them in mid-May.

Public gatherings were still mostly banned, but Austria expects them to resume in mid-July, while Denmark and Germany are targeting late summer. The more affected countries will likely wait until autumn.

This gradual easing of restrictions has helped limit infection rates.

A variety of plans across Canada

What’s the situation in Canada? Various governments have begun to announce their plans to ease containment measures. This list is as of May 8, 2020.

Alberta, Ontario, Quebec and Nova Scotia—These four provinces were still close to their infection peaks when they made announcements about the gradual resumption of activity.

In Alberta, activity related to agriculture and the oil and gas industry never ceased. Some retailers will be allowed to reopen on May 14 (clothing, furniture, bookstores). Theatres, recreation centres and gyms will remain closed. Schools will not open before the fall.

In Ontario, the province proposed to restart the economy in three phases, two to four weeks apart. In each phase, more and more sectors will be able to resume operations. However, the initiation of the next stage will require a reduction in the spread of the disease and the province is not ruling out retightening measures, if necessary. The economic sectors affected by this roadmap will be identified in the near future. Ontario schools could reopen in early June.

In Quebec, residential construction and mining activity resumed in April. Retailers with outdoor access reopened on May 4 (May 25 for hard-hit greater Montreal). Some manufacturing companies (by number of employees) and all construction businesses resumed operations on May 11. Various suppliers to these sectors were also able to return to work.

Elementary schools and daycare centres in Quebec were reopened on May 11 (May 25 in greater Montreal, if the situation permits). However, parents were free to decide whether to send their children to school. High schools, colleges and universities will remain closed until September.

In Nova Scotia, construction activity continued this spring, but non-essential services remain closed. Some outdoor activities have been authorized starting on May 1.

British Columbia, Saskatchewan and Manitoba—Infection rates peaked in these three provinces a few weeks ago when the easing announcements were made.

British Columbia had its first positive cases at the end of January and its infection rate reached a plateau by the end of March. Nevertheless, only essential services were in operation in early May. Starting in mid-May, health services and some retailers could resume their activities if they follow the appropriate precautions.

Saskatchewan unveiled a five-phase restart plan. The first phase involves mainly outdoor activities and the work of health care professionals. The second phase, scheduled for May 19, includes retail stores. The third phase would see restaurants and fitness facilities reopen. Arenas, swimming pools and playgrounds could reopen in phase four. Finally, the last phase would see a lifting of restrictions on the size of public gatherings. There are no dates for the phases and the relaxation of measures will depend on the evolution of virus’s spread.

In Manitoba, the reopening of non-essential businesses will occur in several stages: As of May 4, hair salons were allowed to reopen, as were retail stores that met certain safety standards. Other services could resume at the earliest on 1 June.

New Brunswick, Prince Edward Island and Newfoundland and Labrador—These three Atlantic provinces had reported less than one case per million people in the last week.

New Brunswick residents will move through a four-colour process of gradual reopening: Red, orange, yellow and green. Outdoor activities were first allowed with business reopening to be announced later. The reopening of daycares, offices and restaurants are expected in the coming weeks.

Prince Edward Island reduced its restrictions on May 1. The lobster fishery was scheduled to resume in mid-May. Access to the province remained limited for non-residents.

In Newfoundland and Labrador, with the exception of retail and restaurants, there were no mandatory closures of businesses that maintained adequate sanitary measures. The provincial government was aiming to lift the first restrictions on May 11.

What does it mean for entrepreneurs?

After the lockdowns, many uncertainties remain and the road to recovery could be winding. Entrepreneurs should favour the following strategies.

  1. Health remains a priority. To avoid an outbreak of infections in your company, you will need to put in place measures to ensure the health and safety of your employees. You may have to be creative to meet the required two metres of physical distancing.
  2. Your expectations should be realistic. The recovery could be slow, as evidenced by lacklustre household spending data from China. Some sectors will rebound more strongly than others. Some industries may take years to return to their former pace. See the Canadian outlook section for more information.
  3. Online sales have exploded since mid-March. As consumers develop new habits, make sure you have an attractive transactional website. Your future sales will benefit from it.
  4. If your business isn’t allowed to restart immediately, your industry’s experience in Europe and Asia may give you an idea of how long it will take in Canada. In the meantime, keep an eye out for available assistance programs, including from the Government of Canada and BDC.

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