Dialling back containment measures
On May 6, 2020, the BC government announced its plans to re-open the economy, eight weeks after declaring a state of emergency due to the COVID-19 pandemic. The announcement came as BC’s situation looks increasingly positive, with declining total cases and the lowest per capita cases across any jurisdiction with over five million people in Canada, the US, and western Europe. However, re-opening the economy will not be an easy flip of the switch, but prolonged over stages with physical distancing measures in place throughout.
“BC’s Restart Plan” outlines a multi-phased approach to re-open the economy, starting immediately and ramping up over the summer. For the business community, having a rough timeline for when each phase will come in helps provide greater certainty about plans to re-open, re-hire, and potentially expand services. Going forward, transparent and frequent communication will be key for the business community and public to understand how the situation is progressing, and whether the measures are sufficient. It is critical that BC gets this right to avoid any resurgence of the virus and to help minimize the economic fallout.
We can learn from those businesses still operating, which quickly adjusted and began providing services remotely, or installed equipment to protect workers and customers and provided clear instructions on distancing. Businesses looking to reopen will need to establish similar procedures, based on provincial guidelines. These measures are now the norm for all businesses for the foreseeable future.
Successful containment critical to mitigate economic damage
The necessary containment measures to combat COVID-19 will take a serious toll on BC’s economy. However, the scale of the economic damage is up for debate and will be predicated on how successfully the economy is re-opened. Most economic forecasts predict a strong contraction in Q2/Q3 2020, followed by a recovery into Q4 and 2021. However, depending on the assumptions made, what that economic recovery looks like differs greatly.
Comparing two recent forecasts shows how much uncertainty there is in terms of economic impact. Under RBC’s GDP growth forecast, BC’s economy will lose $30.4 billion in GDP in 2020/2021 compared to the baseline. This compares to Scotiabank’s forecast, which predicts a $41.2 billion loss in GDP.
Both scenarios are dire, but the additional $11 billion in lost GDP comes down to the underlying assumptions made, primarily around containment. The longer and more severe the containment period, the worse the economic damage. For this reason, the next few months will be critical. The better the business community and its customers are able to navigate this period of easing containment, the less economic damage will occur.
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What else can government do to support recovery?
CPABC is working closely with other business groups to provide the BC government feedback on what is needed to restart, recover, and thrive. The BC government has made recovery a priority, creating an Economic Recovery Taskforce with $1.5 billion earmarked to get back on track.
BC is fortunate to have a strong natural resource sector with many capital major projects either underway or proposed. These projects offer high paying jobs and support many SMEs across the province. To aid recovery, it is imperative that these projects have their approval expedited while still maintaining necessary regulatory requirements.
Government should also focus on policies that support increased investment in technology and training, which would lead to productivity growth and a faster economic recovery. Those businesses that were able to stay open through the crisis phase rapidly adopted technology that allowed them to communicate and conduct business remotely. Businesses that have not yet adopted new technology could be incentivized to do so. In addition, re-training should be provided for displaced workers from sectors that will be slower to recover, such as tourism and hospitality.
These are just a few of the many considerations the government must examine going forward. We’ve shown through collective action we can contain COVID-19. Now it is time to show how our collective action can get our economy back on track.
Aaron Aerts is an economist for the Chartered Professional Accountants of BC (CPABC).
Visit CPABC’s resource centre for more information on COVID-19.
In Other News
Last year, rapid inflation resulted in the fastest interest rate increase in a generation. While investment in the province remained resilient in 2022, there are signs high interest rates are slowing capital expenditures and weakening our economic outlook.
While inflation remains well above the Bank of Canada’s 2% target, it continues to slow both provincially and nationally. In March 2023, overall prices in BC rose by 4.7% in BC and 4.3% in Canada compared to March 2022, the slowest rate in BC since February 2022. In comparison, BC’s annual inflation rate was 6.2% to start this year and peaked at 8.1% last May.
According to BC Check-Up: Invest, an annual report by the Chartered Professional Accountants of British Columbia (CPABC) on investment trends across the province, there were 43,106 housing units started in 2022, down slightly from the 43,360 started in 2021.
Starting in early 2022, central banks around the world began to increase interest rates to combat inflation, resulting in significant and quick successions of interest rate increases. As of the writing of this article, the Bank of Canada’s (BoC) key interest rate stands at 4.5%, up from 0.25% at the start of 2022.