Mar 21, 2020
'Atomic' jobless bomb forces Canada to confront scale of crisis
Trudeau announces fiscal package amid pandemic
The historic response to Canada’s economic crisis by Justin Trudeau’s government is only just beginning.
A half-million jobless claims filed this week is a shocking signal of how deep a rut Canada’s economy is in as entire industries shut down in response to the coronavirus pandemic. Oil sands workers in remote camps are already sounding the alarm.
The sudden rise in layoffs suggests that even after unveiling plans to inject hundreds of billions in direct aid and liquidity into the economy, Trudeau and other policy makers will need to do more. Another interest rate cut by the Bank of Canada and a bailout of the airline industry and energy sector could materialize in coming days.
The tourism industry is the first outright casualty as Canada instructs citizens to practice “social distancing.” The world’s longest undefended border is also now closed to non-essential traffic.
“It has been like an atomic bomb,” said Mandy Farmer, who took over what is now an eight-hotel, 750-bed chain in British Columbia from her father. “The travel industry is completely dead here. There is no business on the books.”
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In less than three weeks, both the Bank of Canada and Trudeau’s governing Liberal Party have pushed out a series of measures to aid businesses and individuals who face serious financial pressures from the halt in economic activity. But so far it doesn’t appear to be enough as Canada barrels toward a recession.
“There are going to be large contractions in economic activity. That’s unavoidable when you’re shutting down portions of the economy,” Beata Caranci, chief economist at Toronto-Dominion Bank, said in an interview. “We’re presuming we get back into business operations -- not maybe normal but just a resumption of activity -- by late April or May. If that doesn’t happen, we have a different story.”
The Bank of Canada has cut interest rates by a full percentage point in under two weeks and announced a slew of programs designed to prevent clogs in the financial system’s plumbing.
On the fiscal side, Trudeau unveiled an aid package Wednesday worth $82 billion, or three per cent of Canada’s economy, in an effort to soften the blow. Both the central bank and the government have repeatedly said they’re able and willing to do more.
The government acknowledges its pledge this week is the first step and that it will continue to respond as necessary. The oil sector is a high priority, with the industry also grappling with a global price war sparked by the breakdown of talks between Russia, Saudi Arabia and other OPEC+ producers. The price of a barrel of heavy Alberta crude hit the lowest on record this week.
As a result, economists are expecting more -- and soon.
“You may see an expansion in possible financial support for business,” Brett House, deputy chief economist at Bank of Nova Scotia, said by email. “We may also see more generous wage subsidies, larger direct transfers and more money for health systems.”
In addition to lowering interest rates to 0.75 per cent, the Bank of Canada has injected cash into the financial markets by expanding its purchases of government and mortgage bonds. The bank can still lower interest rates further before getting to it’s effective lower bound.
Policy makers led by Governor Stephen Poloz, who is stepping down in June, also have a few more tools in their arsenal.
“They also have the option in future to continue to expand asset purchases and to enlarge credit facilities on more generous terms,” House said. “Monetary policy is never completely out of options.”
For business owners like Farmer, the third-generation British Columbia hotelier, the speed of the collapse has been unbelievable. She hasn’t been ordered to shut down completely yet but has begun laying off as much as half of her 250 staff.
“I am fighting right now to have a company for these people to come back to. All of our efforts are on cash flow,” the owner of Accent Inns and Hotel Zed said by phone.
Farmer’s biggest ask from the federal and provincial governments is to move quickly to provide her employees with unemployment benefits and potentially defer her property taxes.
“I’m so scared my bank will not help me through this,” she said, even though she says she runs a tight financial ship. “In the good times they tell you they’re your partner, and in the bad times they’ll call your loans.”