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Canada's Atlantic region closed out world to beat COVID-19, and the economy has done OK – Reuters Canada

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OTTAWA (Reuters) – Chef Emily Wells was unsure what to expect as she opened the doors of her seasonal restaurant in rural Prince Edward Island the same day Canada’s four Atlantic provinces bubbled together, allowing travel between them while keeping their borders restricted to everyone else.

A resident views the first iceberg of the season as it passes the South Shore, also known as “Iceberg Alley”, near Ferryland Newfoundland, Canada April 16, 2017. Picture taken April 16, 2017. REUTERS/Greg Locke

The result was far better than she could have imagined.

“It was a remarkable summer, I was floored by it,” Wells said. “The bubble made all the difference. It certainly worked for us.”

The border restrictions along with tough public health measures helped the east coast provinces, which have a combined population of 2.4 million, tamp down COVID-19 early on and largely keep the virus at bay even as the rest of the country entered a second wave of infections.

That success came at a cost. More than 171,000 jobs were lost, exports plunged and the region’s C$5 billion ($3.8 billion) tourism sector was crippled, with all four provinces swinging from economic growth to sudden contraction.

While the initial impact was similar to what happened in the rest of Canada, data shows the rebound in jobs and economic activity that followed was quicker, bolstered by the ability to reopen the economy faster than the rest of the country. tmsnrt.rs/2FRnExA

“We knew (the Atlantic bubble) was going to help, we just didn’t know what it would look like,” said PEI Tourism Minister Matthew MacKay. His tiny province of 160,000 people ended up getting about a third of the record 1.6 million visitors it saw in 2019.

Without the bubble, it would have been far more painful, he said.

Between local support and bubble travelers, business at Mike Fritz’s coffee shop along a popular PEI trail was surprisingly strong. But he is eager to welcome a wider range of visitors next summer.

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“We are hoping that at least the tourists from Ontario and Quebec can come back next season, because that’s almost 60% of our business,” said Fritz.

But both of Canada’s major airlines have slashed service to Atlantic Canada, which experts say will slow the broader tourism recovery and could discourage outside investment.

BY THE NUMBERS

After months of strict restrictions and mandatory quarantines, the four Atlantic provinces began to allow travel between themselves in early July amid concerns the sudden freedom would lead to a rash of outbreaks. That did not happen.

There have been 73 COVID-19 deaths in the region, the bulk occurring before the bubble opened. There are now fewer than 15 active cases in PEI, Newfoundland and Labrador, and Nova Scotia combined. In New Brunswick, which borders with Quebec where case counts are high, there are two outbreaks with 75 active cases.

By comparison, Canada as a whole has had 9,862 deaths and currently has 23,481 active cases, with an average of 2,425 new infections each day. The second wave has already led to targeted shutdowns in a number of non-Atlantic provinces.

That resurgence has hurt Canada’s recovery, with the economy forecast to shrink 5.9% this year, according to a Reuters poll.

Three of the four Atlantic provinces are set to fare better than that, according to analyst estimates, shrinking between 4.3% and 5.4%. tmsnrt.rs/31BgNjG

The surge in cases has also made it less clear when Atlantic Canada might reopen to other provinces, with public opinion firmly against expanding the bubble.

In Newfoundland and Labrador, tour boat operator Joseph O’Brien took the unusual step of teaming up with his main competitor so the two could split costs and guests, rather than jousting for the limited number of visitors.

He estimates he averaged only 8% of his regular capacity over the prime summer months, mostly due to not having visitors from Ontario, Canada’s most populous province. Still, O’Brien supported the strict restrictions to keep people safe.

“I’m not a scientist, but I know that drastic times call for drastic measures,” he said. “What don’t break us usually makes us stronger.”

Graphic: Jobs shed and regained by Atlantic province – here

Graphic: Select Canada real GDP forecasts – here

Reporting by Julie Gordon; Editing by Alistair Bell

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Robust economy ailing after bout with pandemic – Business in Vancouver

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The year 2019 seems like a distant memory in the COVID-19 era, but provincial economic accounts data confirmed that, heading into 2020, B.C.’s economy remained among the strongest in the country.

On an expenditure basis, real gross domestic product (GDP) expanded by 2.7% compared with 1.9% nationally and was on par with 2018’s performance.

B.C.’s solid gain last year was achieved despite weakness in most key segments. Household consumption growth decelerated sharply to 1.7% in 2019, down from 2.8% in 2018. This was the slowest expansion since a 0.3% gain in 2009.

Slower consumption growth was driven by fewer vehicle sales, weaker ancillary spending related to housing, and flat non-durable goods purchases.

Household consumption makes up about 60% of GDP. Overall consumption expenditures growth of 2.1% was propped up by stronger government spending, which rose 3.1%.

Housing was a drag on the economy. Investment in residential structures shrank by 1.5% during the year, following a 2.5% contraction in 2018.

Trade was also dismal. Real export growth slowed to 0.9% from 3.5% in 2018. This was partly offset by slowing imports, which decelerated to a gain of 2.7%, from 3.3% in 2018. 

Weaker growth across key segments was offset by a huge increase in investment spending. Private-sector investment jumped 22% from 2018 on a 35% increase in structure investment. Machinery and equipment was flat. Private investment contributed about 74% of headline growth. This surge reflected build-out of liquefied natural gas projects. Government investment, which gained 8.8%, also outperformed, reflecting investment in schools, hospitals and other infrastructure.

Nominal GDP came in at 4.3%, compared with 4.9% growth in 2018. Economic growth largely accrued to employees during the year. Aggregate wages and salaries were up 5.7%, as net operating surplus or profits fell 7%.

With mixed gains in 2019, headline growth marked a modest handoff to 2020 – but a short-lived one, as COVID-19 ravaged the economy this year. Economic output is forecast to contract by nearly 6% in 2020 due to the pandemic-driven shuttering of parts of the economy earlier in the year and the continuing effects of health measures. Rising COVID-19 cases in the fall and winter will pause the recovery phase observed since May, but growth is forecast to reach about 4% in 2021. •

Bryan Yu is deputy chief economist at Central 1 Credit Union.

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Economy

Robust economy ailing after bout with pandemic – Business in Vancouver

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The year 2019 seems like a distant memory in the COVID-19 era, but provincial economic accounts data confirmed that, heading into 2020, B.C.’s economy remained among the strongest in the country.

On an expenditure basis, real gross domestic product (GDP) expanded by 2.7% compared with 1.9% nationally and was on par with 2018’s performance.

B.C.’s solid gain last year was achieved despite weakness in most key segments. Household consumption growth decelerated sharply to 1.7% in 2019, down from 2.8% in 2018. This was the slowest expansion since a 0.3% gain in 2009.

Slower consumption growth was driven by fewer vehicle sales, weaker ancillary spending related to housing, and flat non-durable goods purchases.

Household consumption makes up about 60% of GDP. Overall consumption expenditures growth of 2.1% was propped up by stronger government spending, which rose 3.1%.

Housing was a drag on the economy. Investment in residential structures shrank by 1.5% during the year, following a 2.5% contraction in 2018.

Trade was also dismal. Real export growth slowed to 0.9% from 3.5% in 2018. This was partly offset by slowing imports, which decelerated to a gain of 2.7%, from 3.3% in 2018. 

Weaker growth across key segments was offset by a huge increase in investment spending. Private-sector investment jumped 22% from 2018 on a 35% increase in structure investment. Machinery and equipment was flat. Private investment contributed about 74% of headline growth. This surge reflected build-out of liquefied natural gas projects. Government investment, which gained 8.8%, also outperformed, reflecting investment in schools, hospitals and other infrastructure.

Nominal GDP came in at 4.3%, compared with 4.9% growth in 2018. Economic growth largely accrued to employees during the year. Aggregate wages and salaries were up 5.7%, as net operating surplus or profits fell 7%.

With mixed gains in 2019, headline growth marked a modest handoff to 2020 – but a short-lived one, as COVID-19 ravaged the economy this year. Economic output is forecast to contract by nearly 6% in 2020 due to the pandemic-driven shuttering of parts of the economy earlier in the year and the continuing effects of health measures. Rising COVID-19 cases in the fall and winter will pause the recovery phase observed since May, but growth is forecast to reach about 4% in 2021. •

Bryan Yu is deputy chief economist at Central 1 Credit Union.

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Bank of Canada: Vaccine Could Trigger Swift Economic Rebound – Voice of America

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OTTAWA, ONTARIO – Canada’s economy could rebound faster than expected if consumer spending jumps in the wake of a successful coronavirus vaccination effort, Bank of Canada Governor Tiff Macklem said Thursday.

On the other hand, if the economy weakens amid a second wave of infections, Macklem indicated the central bank could, if necessary, cut already record-low interest rates.

In late October, the bank said it assumed a vaccine would not be widely available until mid-2022. Since then, several manufacturers have announced potential vaccines that could be distributed starting early next year.

“It is possible, especially when there is a vaccine, that households will decide to spend more than we have forecast, and if that happens the economy will rebound more quickly,” Macklem said in response to questions from the House of Commons finance committee. He described the news about vaccines as promising.

In late October, the bank forecast the economy would not fully recover until sometime in 2023, a forecast Macklem repeated in his opening remarks.

The path to recovery still faces risks, he said. Earlier this year, the bank slashed its key interest rate to 0.25%.

“We could potentially lower the effective lower bound, even without going negative. It’s at 25 basis points. It could be a little bit lower,” Macklem said, repeating that negative interest rates would not be helpful.

The U.S. Federal Reserve has a target for its key rate of 0 to 0.25%. The Reserve Bank of Australia this month cut its policy rate to 0.1%.

Some other central banks also have benchmark rates that are less than 0.25%, such as the European Central Bank and the Bank of England.

“We want to be very clear – Canadians can be confident that borrowing costs are going to remain very low for a long time,” Macklem said.

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