Monster Job Losses Force Canada to Confront Scale of Crisis

Shelly Hagan and Kait Bolongaro Bloomberg March 23, 2020


(Bloomberg) -- The historic response to Canada’s economic crisis by Justin Trudeau’s government is only just beginning.

A half-million jobless claims filed last week, representing 2.5% of the labor force, 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. The new worry is Covid-19 could spread through remote barracks-like camps that house oil workers, adding another blow to a key sector.

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 now closed to non-essential traffic and Trudeau is girding citizens for a long haul before the nation emerges from the crisis.

“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.”

All-Out Push

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 this month 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 C$82 billion ($57 billion), or 3% 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 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.

The country’s airline industry may need billions in aid to stay afloat. The Canadian government is also trying to help the struggling manufacturing sector, with Trudeau announcing plans to help factories shift gears to begin making desperately-needed medical supplies.

“You may see an expansion in possible financial support for business,” Brett House, deputy chief economist at Bank of Nova Scotia, said by email.

“There is no one silver bullet,” Trudeau told reporters outside his residence Sunday morning, where he made televised remarks for the seventh consecutive day. “It is likely to take months before we’re fully through this.”

Toronto -- Canada’s biggest city -- recorded its first death from Covid-19 on the weekend, bringing the national toll to 20. As of Sunday night, there were 1,430 confirmed cases of the virus across the contry.

Monetary Arsenal

In addition to lowering interest rates to 0.75%, the Bank of Canada has injected cash into the financial markets by launching a series of new facilities to acquire securities from banks -- tools they can continue to use even after they bring borrowing costs to near zero.

“They also have the option in the 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 her 250 staff and said a 50% reduction in her workforce is possible.

“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.”

©2020 Bloomberg L.P.

Canada’s Economic Heartland Shuts Down in Effort to Slow Virus

Sandrine Rastello Bloomberg March 23, 2020

(Bloomberg) -- Canada’s economic heartland is shutting down as Ontario and Quebec step up efforts to slow down the coronavirus outbreak.

The two provinces, which together account for about 57% of the country’s economy, have ordered non-essential businesses to close by the end of Tuesday. The order is set to run for two weeks in Ontario and three in Quebec.

“We’re entering a new, more critical stage and it’s time to add measures to limit contagion,” Quebec Premier Francois Legault told reporters Monday.

The drastic measures reflect policy makers’ concerns over the escalation of cases, which some people make worse by continuing to go out and mingle. Canada had 1,432 confirmed cases of coronavirus as on Monday morning; the number has more than doubled since March 18.

While many companies had already announced plans to suspend operations, the additional closures are set to deepen an economic contraction that economists estimate will be between 10% and 24% in the second quarter, on an annualized basis.

Governments and the central bank are multiplying measures to cushion the blow. Prime Minister Justin Trudeau announced an C$82 billion ($56.5 billion) aid package last week. On Monday British Columbia, which has about as many virus cases as Ontario, said it would offer C$5 billion in tax relief and other support for businesses and individuals.

Ontario Premier Doug Ford said a list of businesses allowed to stay open will be shared Tuesday. Quebec’s list included banks, telecommunications, media, essential transportation and providers of drugs and groceries. Mining and metals companies are deemed essential in Quebec, but must reduce their activity to a minimum.

The premiers, along with Trudeau, have urged people to pay heed to social isolation guidelines that still aren’t respected across the board. Canada has so far stopped short of mandatory confinement of people in their homes.

”Enough is enough,” Trudeau told reporters outside his residence in Ottawa on Monday. “Go home and stay home. This is what we all need to be doing.”

©2020 Bloomberg L.P.