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COVID-19 has changed Canada’s economy

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Every facet of Canadian life has been changed by the current pandemic, from how and where we live, to how we shop, eat and work. While not all changes have been for the better, COVID-19 could bring about some positive changes to Canada’s economy.

Where we live

The pandemic has certainly wreaked havoc on one of the traditional pillars of Canada’s economy — the housing market.

Physical distancing requirements at the onset of the pandemic in March walloped the real estate industry because realtors couldn’t host open houses, and buyers were concerned about the future. This year was the worst April for home sales in almost 40 years, and May was only slightly better.

Realtors are quick to say the slowdown is just a blip, and that demand remains strong. But policy-makers are clearly a little bit concerned. The Bank of Canada is expecting COVID-19 will cause mortgage deliquencies to more than double the peak they hit during the financial crisis of 2009, and Canada’s national housing agency is expecting prices could drop by almost 20 per cent before rebounding starting in 2022, or later.

Lower prices are bad news for sellers, but a slowdown does represent an opportunity for buyers looking to jump to a market that had gotten away from them.

COVID-19 has prompted lenders to cut mortgage rates to record lows, a welcome development for buyers. And those lower rates are helping  current homeowners, too.

Lowestrates.ca, a comparison website for mortgages, insurance and loans, is seeing interest in refinancing skyrocket right now.

 

Home sales are plunging, but new buyers are being offered the lowest interest rates on record. Existing owners are refinancing, too. (Joan Dymianiw/CBC)

 

“We have seen a huge increase in the number of consumers coming to our site to compare rates and see if they can save money by breaking their current mortgage and renewing early or refinancing,” said CEO Justin Thouin.

Where we work

The pandemic is also affecting commercial real estate. It may have started a small shift away from the standard downtown office towers, as many question how much they want to live and work in dense urban areas if they don’t have to.

Public transit use plummeted during the pandemic, and has yet to recover even as the economy has started to reopen.

 

 

Toronto’s cash-strapped transit system has missed out on almost $100 million worth of fares, city officials said recently, without a corresponding decline in the costs of running the system.

Bike sales are booming and bike lanes are experiencing a renaissance. But as a partial recovery of oil prices may suggest, even the much-maligned car could see higher demand as consumers opt for the safety and security of their own self-contained travel bubbles.

“This makes perfect sense as no one wants to be in a crowded space currently for themselves or others,” said Mark Le Dain, head of business intelligence and strategy at Validere, a data intelligence firm that advises companies in the energy sector.

How we shop

Retail is another sector of Canada’s economy that has taken the pandemic on the chin. New numbers released last Friday showed retail sales fell by more than a quarter in April, their biggest plunge on record.

 

Retailers in Canada were hit hard by the pandemic, but experts say the ones who will survive and thrive will be more nimble. (Cole Burston/Bloomberg)

 

While some stores are doing well (business at grocery stores is booming, for example),stores that sell discretionary items are being hit hard for the most part as consumers focus on what they need to get by.

Widespread store closures hit just about every chain, and it looks like many may not recover. Retail stalwarts such as Reitmans and Aldo have sought protection from their creditors in recent weeks, as the pandemic exacerbated the problems they were dealing with already.

Online shopping, on the other hand, is proving to be one of the pandemic’s biggest successes. Online sales more than doubled in April and now make up almost 10 per cent of everything sold in Canada — the biggest proportion on record.

The Canadian chains that ran into trouble were lacking on the e-commerce side, but retail experts say the crisis prompted businesses to dive into the world of retail online.

“Retailers and suppliers have been forced to build out online shopping capabilities at an accelerated rate,” said retail consultant Bruce Winder. “Consumers now have the convenience of being able to buy almost anything online and have it delivered or use curbside pickup.”

 

While overall sales are down, some sectors such as grocery stores and alcohol stores are booming. (Joan Dymianiw/CBC)

 

There’s perhaps no better example of the boom in online selling than the rise of Shopify, the Ottawa-based company that helps real-world stores sell online. Shopify was valued at barely over $1 billion when it went public five years ago. Last month, it passed the Royal Bank of Canada to become the most valuable company in Canada — worth more than $140 billion at last count.

Shopify is a great example of the type of company that could be set to thrive in the post-COVID economy: nimble, innovative and digitally focused.

Tech companies like Shopify represent a small but growing part of Canada’s economy. The tech sector has grown twice as fast as the rest of the economy in the last decade, and now makes up five per cent of Canada’s entire GDP, according to the Bank of Montreal.

 

Canada’s technology sector is now about five per cent of the entire economy, growing much faster than any other part. And while IT has been hit by COVID-19, the impact hasn’t been as dramatic, either. (Scott Galley/CBC)

 

Even tech hasn’t been immune to the slowdown of COVID-19, but the sector hasn’t plunged by nearly as much as others. The resilience of Canada’s technology sector is an encouraging sign as Canada’s economy tries to reorient itself for the post-pandemic reality.

How we work

The sea change of COVID-19 has impacted Shopify itself, as the company recently announced it will now allow its employees to work from home permanently, should they desire. The company has a stylish headquarters in downtown Ottawa.

Such a move would have been considered unthinkable not too long ago, but the pandemic has hurried along changes in the way Canadians work.

One positive trend emerging from COVID-19 is it has turned flexible work from something that companies used to pretend to care about, into a must-have for any firm hoping to thrive long term, said Jennifer Hargreaves, entrepreneur and founder of recruitment agency tellent.

The shift was underway before COVID-19, but has certainly accelerated during the pandemic, she said.

“This is very much about collaboration and making work work better for everybody,” Hargreaves said.

Instead of trying to fix a broken system, companies hiring top talent today are taking flexibility seriously. “That’s where you’re going to see companies thrive,” she said. “That old way of thinking about the economy is not going to be sustainable.”

Source: – CBC.ca

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Economy

Canadian first quarter industry capacity use rises to 81.7%

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Canadian industries ran at 81.7% of capacity in the first quarter of 2021, up from a upwardly revised 79.7% in the fourth quarter of 2020, Statistic Canada said on Friday.

The increase in the first quarter was driven by gains in construction and in mining, quarrying, and oil and gas extraction.

Following are the rates in percent:

Q1 2021 Q4 2020 (rev) Q4 2020 (prev)

Cap. utilization 81.7 79.7 79.2

Manufacturing 76.5 76.7 76.2

NOTE: Economists surveyed by Reuters had forecast a first quarter rate of 80.6% capacity utilization.

(Reporting by Steve Scherer, editing by Dale Smith (steve.scherer@tr.com))

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UK, Canada agreed to redouble efforts for trade deal

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British Prime Minister Boris Johnson and Canadian Prime Minister Justin Trudeau agreed on Friday to redouble their efforts to secure a trade agreement as soon as possible to unlock such a deal’s “huge opportunities”.

“The leaders agreed a comprehensive Free Trade Agreement between the UK and Canada would unlock huge opportunities for both of our countries. They agreed to redouble their efforts to secure an FTA (free trade agreement) as soon as possible,” Downing Street spokesperson said in a statement.

“They discussed a number of foreign policy issues including China and Iran.”

 

(Reporting by Guy Faulconbridge, writing by Elizabeth Piper)

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Greater pricing power to help Canadian exporters withstand loonie surge

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A stronger Canadian dollar is usually seen hurting exporters, but the nature of the global economic recovery could help firms pass on their higher costs from the currency to customers, leaving exporters in less pain than in previous cycles.

Exports account for nearly one-third of Canada‘s gross domestic product, compared with about 12% for the United States, making Canada‘s economy more sensitive to a stronger currency, with the loonie trading near a six-year high versus the U.S. dollar.

But exporters could remain more competitive than usual after the COVID-19 pandemic led to a surge in the amount of money available for consumer spending, bolstered by government support measures. A global shortage of goods, due to supply chain disruptions, could also help.

“The appreciation that we are seeing in the currency now is less of an issue than in most other appreciations that we have seen,” said Peter Hall, chief economist at Export Development Canada.

“There are not enough goods and services available to satisfy the demands of the marketplace at the moment. And in that case there is probably pricing power,” Hall added.

The prices that Canadian manufacturers charge for their products increased at a record pace in May, while activity climbed for the 11th straight month, data from IHS Markit Canada showed last week.

Canada‘s major exports include autos, oil and other commodities. With commodity prices soaring, the Canadian dollar has been the top performing Group of 10 currency this year, advancing 5% against the U.S. dollar.

It hit a six-year high near 1.20 per greenback, or 83.33 cents U.S., last week. The Bank of Canada has said that further appreciation could weigh on the economy.

The loonie traded close to parity for much of the 2007 to 2013 period, contributing to a slow recovery for Canada‘s exports from the global financial crisis.

“What (business) was left behind after that period of an overvalued currency was relatively strong,” said Doug Porter, chief economist at BMO Capital Markets.

That reduces the risk of a “hollowing out” of the sector during the current episode of currency strength, Porter said.

At Magna International Inc, a major Canadian producer of auto parts, global diversification of its operations helps protect against currency strength.

“Movements in the Canadian dollar have become relatively less impactful to our overall business,” a company spokesperson said in an email to Reuters. “Increased global economic activity, and in particular global light vehicle production is a more important factor to our outlook.”

For now, the greater concern for manufacturers could be the reduced and more costly supply of inputs, such as semiconductor microchips, as well as the lengthy closure of the U.S. border.

“The challenge we have faced as an industry is the movement of personnel,” said Brian Kingston, chief executive of the Canadian Vehicle Manufacturers’ Association (CVMA). “If a piece of equipment on the line goes down, you may need to bring in someone from Michigan.”

For some industries, those logistical issues and the stronger Canadian dollar could be trivial compared to the jump in commodity prices.

“Under normal circumstances, a rising Canadian dollar would hinder the competitiveness of Canadian exports, but the way ag (agriculture) markets have risen overall, it’s a moot point,” said Lorne Boundy, merchandiser for Winnipeg-based crop handler Paterson Grain.

 

(Reporting by Fergal Smith; additional reporting by Allison Lampert in Montreal, Rod Nickel in Winnipeg and Shreyasee Raj in Bengaluru; Editing by Denny Thomas and Jonathan Oatis and Kirsten Donovan)

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