Opinion: The Canadian economy should brace for the effects of COVID-19 – National Post

The outbreak of the novel coronavirus (COVID-19) is an unfortunate global health emergency that is causing havoc for thousands of people in China and other affected countries. The extent the disease has spread throughout Asia and other countries remains uncertain, and so is the length of time it will take to eventually contain it.

In comparison to the SARS outbreak in 2003, COVID-19 is less deadly but much more virulent. According to the U.S. Centers for Disease Control and Prevention, there were 8,096 probable cases of SARS in 29 countries, resulting in 774 deaths. As of the time of this writing, COVID-19 had spread to just as many countries, with more than 80,000 probable cases and over 2,700 deaths.

COVID-19 also adds much uncertainty to the global economy. China’s measures to contain the spread of the virus have been necessary, but they’ve also resulted in the halting of economic activity across a wide range of sectors and regions, especially in Hubei province, the epicentre of the outbreak. Throughout China, households are taking a prudent approach, avoiding travel and other discretionary spending on retail and hospitality.

The toll on China’s domestic economy will be heavy. The extent of the impact on the economy in 2020 will depend entirely on how long it takes to contain the virus and get people back working and shopping. In the case of the SARS outbreak, it was seven months from the first reported cases before the last case was identified.

But China’s economy is also very different than it was during the SARS outbreak. In real terms, China is four times larger today than it was in 2003 — now accounting for roughly 16 per cent of global gross domestic product. China has become the world’s largest exporter and the second-largest importer. It has transitioned from an economy driven by industrial production, to one that is much more dependent on consumer demand. And, with over 150 million Chinese people travelling abroad in 2019, China is the world’s largest outbound tourism market.

China has also established greater connections with the rest of the world through global supply chains. Hubei province is an important global supplier of chemicals, auto parts and LCD screens, to name just a few. Factory closures are causing big problems for multinational enterprises like Apple, Hyundai and Samsung, which have temporarily shut offices and production.

As such, the disruption on China’s consumers and production will have broader repercussion on the global economy — through weaker foreign affiliate sales, tourism spending and imports, as well as disruptions to global supply chains. There is no doubt that Canada’s economy will also suffer a hit.

Chinese tourism to Canada has been growing in importance. A record 737,000 Chinese tourists travelled to Canada in 2018, spending roughly $1.8 billion and accounting for 7.3 per cent of our tourism receipts. In the Conference Board of Canada‘s latest “Provincial Economic Outlook,” released today, we predict that Chinese tourism spending in Canada will be cut by a third this year, resulting in a $550 million hit to real GDP in the first half of 2020. The largest dollar-value impact will be felt in British Columbia, while the largest proportional impact will occur in Prince Edward Island, where tourism is an important contributor to the local economy.

The reduction in air travel and economic activity in China has also resulted in a hit to the price of oil and other resources, such a copper. Oil prices are down by roughly US$10 ($13) per barrel since early January, a situation that will hurt the energy sector, which is still recovering from a collapse in investment. Live and fresh lobster exports to China, valued at over $450 million in 2019, will also take a hit this year, affecting the livelihoods of fishers in the Atlantic provinces. Exports of iron, copper and lumber are also at risk due to weaker demand from China.

The impact of multilayered global supply chains on Canadian production have yet to appear — many companies don’t actually know how far their supply chains run — but if production halts persist in China, Canadian firms will undoubtedly feel the effects, as well.

More data and more certainty about the extent of the COVID-19 outbreak and its containment are needed to quantify the impact on Canada’s economy. For now, the measurable impacts are small on a national scale, but will substantially impact some regions and industries in this country. The best hope is for a quick, successful containment of COVID-19 that would minimize the risks to an already fragile global economic outlook.

National Post

Zhenzhen Ye is a senior economist and Pedro Antunes is the chief economist at the Conference Board of Canada.