Canada’s economy is careening toward recession as the COVID-19 outbreak weighs on business activity and consumer spending, raising the threat of layoffs and bankruptcies in the coming months.
The unfolding downturn is shaping up to be swift and sharp, as Canada and other countries take increasingly drastic steps to slow the spread of the novel coronavirus that causes COVID-19.
Exports are bound to weaken – not only because of a big drop in oil prices, but softening demand from key trading partners. Household spending is tightening as consumers restrict their purchases to the essentials. And debt-laden businesses are finding themselves under financial pressure as their revenues take a hit.
As leaders and health professionals encourage Canadians to avoid travel, gatherings and other aspects of daily life, many companies suddenly can no longer count on routine business to keep cash flows intact.
On Friday, Royal Bank of Canada and Canadian Imperial Bank of Commerce said the country will slip into a recession as economic growth turns negative in the next two quarters.
“You kind of hope you’re wrong [with that forecast], but I fear we are right,” said RBC chief economist Craig Wright.
CIBC said both Canada and the United States will likely join “a growing list” of nations that experience an economic contraction. “Stretching out the period in which the disease spreads, while essential in preventing an overrun medical system, lengthens the period in which the economy feels a bite,” CIBC economists said in a report.
Financial leaders are taking action to blunt the hit to the economy and ensure the financial system continues to function smoothly.
The Bank of Canada made an emergency rate cut on Friday to protect the economy against “negative shocks” from the outbreak and lower oil prices. The bank’s overnight lending rate has now been lowered by a full percentage point in just more than a week, and many analysts expect another round of cutting that would take the rate to 0.25 per cent, matching a record low.
“It is clear that the spread of the coronavirus is having serious consequences for Canadian families, and for Canada’s economy,” the bank said in a statement. “In addition, lower prices for oil, even since our last scheduled rate decision on March 4, will weigh heavily on the economy, particularly in energy intensive regions.”
Meanwhile, Finance Minister Bill Morneau said Friday that a “significant stimulus package” would arrive next week. Canada’s banking regulator also cut the industry’s “stability buffer” by 125 basis points, a move that frees up roughly $300-billion for banks to lend out.
And as part of the government’s plan to prevent smaller businesses from running out of cash, Export Development Canada and Business Development Bank of Canada will boost their loans by $10-billion, echoing a strategy used during the 2008 financial crisis. But Ottawa has yet to provide details, including whether it will provide cash to the two Crown corporations or whether they will issue the loans from their existing funds.
Still, such stimulus measures are unlikely to keep Canada from falling into a recession, RBC said earlier Friday, noting the eventual recovery could be tepid because of “the blow to household confidence.”
“We hope because the labour market’s been so tight that firms hold onto their workers, knowing how difficult it was to get the best and brightest when the economy was strong,” said Mr. Wright. “But there’s still going to be some layoffs and hours worked will probably be cut, and that all translates into hits on the income front.”
As such, spooked consumers are poised to deliver a shock to Corporate Canada.
Already, the airline and tourism industries are reeling as travellers cancel hotel and flight bookings, major events get postponed and people stay at home. The Canadian government on Friday asked residents to avoid all non-essential travel outside the country.
Earlier this week, Calgary’s WestJet Airlines said it is cutting its seat capacity by 12 per cent, along with freezing spending and hiring, while Montreal’s Transat AT is seeking government help to avoid layoffs as its sales plunge. Global airline revenue could plummet more than US$100-billion because of the virus outbreak, an industry group said.
The Canadian auto industry had already seen a weak sales trend and was hoping for a rebound this year.
“Now the coronavirus has thrown that all into mayhem,” said Dennis DesRosiers, president of DesRosiers Automotive Consultants.
Dealers worry that coming months could be rough as consumers pare back on big-ticket items.
“Everyone is on edge in terms of what may happen as we move forward,” said Denis Ducharme, president of the Motor Dealers’ Association of Alberta. “If it’s normal human nature, I would anticipate that we’ll probably see a very slow period until lots of things get rectified.”
The Canadian energy industry is bracing for yet another slump. Oil stocks were punished this week, after Saudi Arabia slashed its crude prices when the Organization of the Petroleum Exporting Countries failed to agree on production cuts.
Cenovus Energy Inc. and other producers have cut their capital spending plans, while the budgets of oil-reliant provinces – such as Alberta, Saskatchewan and Newfoundland – will take a major revenue hit from an extended period of low prices.
The restaurant industry could also be hurt as customers hunker down at home.
Steam Whistle Brewing in downtown Toronto cancelled its annual St. Patrick’s Day party, which drew 1,400 people last year. “We realized we just couldn’t be responsible for anything that potentially put our customers at risk,” said chief executive officer Andy Burgess. “I’ve made a lot of decisions this week that didn’t maximize our cash flow.”
In the event of a recession, Canada’s large banks could face soaring loan losses, as borrowers have trouble servicing and refinancing debt and overleveraged companies face insolvency. A major hit to bank earnings could send ripples through the broader economy if banks curtail lending to troubled sectors such as energy and hospitality.
Bank of America Merrill Lynch analyst Ebrahim Poonawala is predicting a 40-per-cent drop in earnings per share for Canada’s five largest banks in a “stress/recession scenario,” because of loan losses and margin compression from lower interest rates.
The impact on Canadian banks could be more significant than in 2008-09 financial crisis, Mr. Poonawala wrote in a note to clients on Friday.
“The consumer (and as a result the housing market) is highly vulnerable to a turn in the job market given elevated debt levels; this could lead to a worse credit loss experience during the next downturn,” he said.
The national household debt burden – more formally known as the ratio of credit market debt to disposable income – stands at 176.3 per cent, Statistics Canada said Friday. In other words, Canadian households owe $1.76 for every dollar of after-tax income.
While the debt burden has levelled off in recent years, it remains near a record high, and it could come under pressure this year given looser interest rates and the prospect of lower income due to job losses or fewer work hours.
“Further acceleration in credit growth amid slowing income gains poses a risk and may renew the buildup of the already-high financial vulnerabilities,” said Toronto-Dominion Bank economist Ksenia Bushmeneva in a client note.
CIBC said Friday that Canada’s jobless rate could rise to 7 per cent from its current 5.6 per cent. Job losses could have disastrous consequences for part-time or gig workers who aren’t covered by Employment Insurance benefits.
“We hope to see some support from the federal government next week to ease the pain on businesses so they’re not pressed to fire people quickly or cut hours dramatically,” said Mr. Wright. “And for those [workers] that are impacted, [offer] some support for income lost.”
With a file from Patrick Brethour
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U.S. economy lost jobs in March for 1st time since 2010 – CBC.ca
The U.S. economy shed jobs in March, abruptly ending a historic 113 straight months of employment growth as stringent measures to control the novel coronavirus pandemic shuttered businesses and factories, all but confirming a recession is underway.
The Labor Department said employers cut 701,000 jobs last month after adding a revised 275,000 in February. The unemployment rate shot up to 4.4 per cent from 3.5 per cent. That’s the biggest monthly increase in the jobless rate since 1975.
According to a Reuters survey of economists, nonfarm payrolls had been forecast to decrease by 100,000 jobs last month, snapping a record streak of employment gains dating to October 2010. Unemployment was seen rising to 3.8 per cent.
Friday’s report is far from an accurate depiction of the economic carnage being inflicted by the contagious coronavirus. The government surveyed businesses and households for the report in mid-March, before a large section of the population was under some form of a lockdown, throwing millions out of work.
The report could sharpen criticism of the Trump administration’s handling of the public health crisis, with U.S. President Donald Trump himself facing criticism for playing down the threat of the pandemic in its initial phases. Already, data has shown a record 10 million Americans filed claims for unemployment benefits in the last two weeks of March.
April numbers likely to be much worse
With jobless claims, the most timely indicator of labour market health, breaking records over the last couple of weeks and a majority of Americans now under “stay-at-home” or “shelter-in-place” orders, Oxford Economics is predicting payrolls could plunge by at least 20 million jobs in April, which would blow away the record 800,000 tumble in March 2009.
“The economy has fallen into the abyss,” said Chris Rupkey, chief economist at MUFG in New York.
“Everywhere you look Washington and state governments were not prepared for the rapid spread of the virus and the devastating damage that would be done to the economy if businesses were shut down and workers sent home.”
Economists also worry the sudden closure of businesses could make it difficult for the Labour Department to accurately capture the magnitude of layoffs.
There are also perceptions that a $2.3 trillion US fiscal package signed by Trump last week, which makes generous provisions for the unemployed, and the federal government’s easing of requirements for workers to seek benefits could also be driving the jobless claims numbers higher.
“The April report should better reflect the severity of the recession, though the exact numbers are hard to pin down,” said Michelle Meyer, a U.S. economist at Bank of America Securities in New York. “Businesses that have closed won’t be responding to the survey.”
How an energy jobs coalition can help the US economy bounce back | TheHill – The Hill
The chorus is growing louder: in addition to halting the increases in coronavirus cases, we need an energy stimulus package focused on rebuilding the economy. Job creation and infrastructure development will be key.
With unemployment filings reaching nearly 10 million, it is clear we are in the midst of an economic calamity leading to significant business closures and further job losses, despite the stimulus packages enacted by Congress to date. We need to create new jobs, protect the livelihoods of American people and ensure the future resilience of our economy
In normal times and in crisis, we are completely reliant on energy, water, transportation, communications and finance infrastructures to keep our economy running. Energy has a special place in this critical infrastructure mix. The Department of Homeland Security describes it as the “key enabler of all other infrastructures… Without a stable energy supply, health and welfare are threatened, and the U.S. economy cannot function.”
Within the energy sector, electricity — the “uber” infrastructure on which all others rely — deserves special attention. It is essential for running our hospitals, operating ventilators, charging our phones and computers and communicating via internet-enabled video conferencing — critical for our current makeshift economy.
The energy sector — in the early stages of a low-carbon transition — has seen natural gas, renewables, storage and efficiency play a greatly expanded role over the last decade and is a powerful job creator. The recently-released 2020 U.S. Energy and Employment Report underscores this connection: while the energy and auto sectors make up 5.4 percent of the American workforce, they created 10.7 percent of all new jobs since 2015. Translation: 915,000 new jobs, over 40 percent of them in energy efficiency alone.
This argues for a prominent position for energy in the next stimulus package. The federal efforts during the Depression of the 1930’s and the Great Recession of 2008-2009 are noteworthy in this regard.
During the Depression, the Civilian Conservation Corps, Rural Electrification Administration, Tennessee Valley Authority and Bonneville Power Authority were established to repair and build infrastructure, initiate large scale hydropower for electricity generation and take electricity to every home and farm. Three of these programs were principally energy-related — the REA alone supported the formation of 800 rural electric co-ops and the construction of 350,000 miles of power lines.
The American Recovery and Reinvestment Act also had a significant energy focus. It kickstarted a rapid expansion of on-shore wind, initiated large scale solar deployment, supported the first commercial scale carbon dioxide capture and sequestration facility at a coal plant and laid the foundations for the development of “smart” energy systems — as well as creating a new approach to clean energy innovation, ARPA-E, which has spawned over 80 start-ups.
As the public and private sectors turn their attention to rebuilding our economy, we need to seed new industries that underpin our low-carbon future and build infrastructure aligned with that future. We don’t need a physical “corps” or new federal organization as in the 1930s — our energy systems are largely operated by the private sector and have vast infrastructures in place. But we do need an energy stimulus program built on the foundation of an “Energy Jobs Coalition” (EJC) to keep the focus on energy infrastructure modernization and job creation through 2021 and a platform for further job growth after that.
What programs might be supported by an Energy Jobs Coalition in a new stimulus package?
Clearly, immediate relief for modest income families must remain paramount, for example, by supporting additional low-income energy assistance through the Low Income Home Energy Assistance Program. Grants could also support electricity and gas distribution companies to enhance their energy efficiency programs, especially for low-income households and small businesses.
EJC-supported programs could include capital improvements that substantially increase energy efficiency in public buildings — courthouses, city halls, etc. This is especially important for rural areas where declines in population and high unemployment have reduced tax bases. Federal buildings could be improved through an amped-up Federal Energy Management Program, saving money on utility bills that could be spent elsewhere.
In addition, the EJC should support grid infrastructure modernization. A cost-share program to automate substations, for example, would further enable distributed generation while helping to protect the grid from cyber-attacks. Modern energy systems should be designed to support job growth while remaining aligned with the active clean energy transition.
Programs should support the decarbonization of incumbent energy systems, such as natural gas, by providing cost-share funds to reduce natural gas flaring, produce renewable gas from landfill and agricultural waste. They should also support state grants for offsetting the cost to low-income consumers associated with replacing gas distribution systems that are leaking methane.
The coalition’s focus could also include clean energy industry creation through both innovation and deployment investments. There are many candidates: advanced battery technologies and long-duration electricity storage, clean hydrogen supply and infrastructure, establishing regional technology innovation hubs, modular nuclear reactors, a new generation of carbon capture and removal projects — from power plants — industrial facilities and the air, offshore wind, integration of energy networks with artificial intelligence and big data capabilities, and more.
This should be paired with financing initiatives, such as renewable, advanced nuclear and carbon dioxide utilization and sequestration tax credits, an expanded loan program for supporting state Green Banks and clean energy for tribal lands and indigenous communities. In addition, perhaps the Clean Energy Department Administration — which had bipartisan support a decade ago — should be reconsidered.
Job creation in all of these areas should be underpinned by a network of private, public and union-supported apprenticeship and training programs that directly address the need for an expanded energy workforce. For example, the Building Trades Union alone offers training and apprenticeships at over 1,500 locations across the country.
While this is not an exhaustive list, it offers some examples of what an Energy Jobs Coalition could support in a new stimulus package — good for American workers, our economy and the planet.
Ernest J. Moniz was the 13th US Secretary of Energy (2013-17) and is the founder and CEO of the Energy Futures Initiative, a Washington-based clean energy nonprofit.
WHO: Countries that rush to lift restrictions risk 'severe and prolonged' damage to economy – CNBC
World Health Organization (WHO) Director-General Tedros Adhanom Ghebreyesus talks during a daily press briefing on COVID-19 virus at the WHO headquaters in Geneva on March 11, 2020.
Fabrice Coffrini | AFP | Getty Images
Countries that rush to lift quarantine restrictions designed to contain the coronavirus pandemic risk an “even more severe and prolonged” economic downturn and a resurgence in COVID-19 cases, World Health Organization Director-General Tedros Adhanom Ghebreyesus warned on Friday.
“We are all aware of the profound social and economic consequences of the pandemic,” Tedros said during a briefing at the agency’s headquarters in Geneva. “Ultimately the best way for countries to end restrictions and ease their economic effects is to attack the virus.”
Globally, more than 1 million cases of COVID-19 have been confirmed, including at least 55,781 deaths, according to Johns Hopkins University. The outbreak, which emerged in China a little over three months ago, has hit economies hard as cities shut down, putting people out of work.
Earlier in the week, WHO officials said they were deeply concerned about the rapid escalation and global spread of the outbreak.
Tedros on Friday called on countries to help their citizens by expanding social welfare programs, moving financial barriers and ensuring public health measures are “fully funded.”
“If people delay care or avoid it because they can’t afford it, they not only harm themselves, they make the pandemic harder to control and put society at risk,” he said. “This is an unprecedented crisis which demands an unprecedented response.”
On Monday, WHO officials said government lockdowns are not enough to contain the coronavirus outbreak. However, they are necessary, despite their impact on the economy and society, they said. Without them, the coronavirus would kill even more people.
“This is serious. This is a deadly virus, people will get through it, countries will get through it,” said Dr. Mike Ryan, executive director of the WHO’s health emergencies program.
World leaders need to build up their public health systems “if we’re going to get out of an interminable cycle of economically punishing lockdowns and shutdowns,” Ryan said. “We must get back to be able to control this virus, live with this virus, develop the vaccines that we need to finally eradicate this virus.”
WHO officials also said the coronavirus is impacting fights against other infectious diseases such as polio.
“In recent years, we have driven polio to the brink of eradication,” Tedros said Friday. Many health-care workers are now supporting the COVID-19 response, causing them to temporarily halt vaccinations for polio in some cases, he said.
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