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T H E E C O N O M I C FA L L - O U T O F C O V I D - 1 9 , H O W B A D I S I T A N D W H E R E A R E W E G O I N G ?

APRIL 2020

E X T E R N A L E C O N O M I C S E T T I N G

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First modern global pandemic is sweeping the world

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Countries are at different stages in the infection/stabilization process

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Many governments have shuttered large parts of their economies to slow disease spread and protect public health – an unprecedented step

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The global economy is headed for a sharp – but hopefully temporary – recession, with a bigger drop in output than in 2008-09

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For the advanced economies, consensus forecasts point to some recovery in the second half of 2020 extending into 2021

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B.C. looks to be in a better position than several other provinces and some American states, based on infection rates and the extent of business closures. Still, our economy is currently being pummeled by the toxic combination of 1) mandated business closures in many sectors, and 2) the onset of a world-wide recession

G L O B A L R E C E S S I O N ( A N N U A L E C O N O M I C G R O W T H A D J U S T E D F O R I N F L AT I O N )

Sources: IMF, April 2020. 3

2019 2020 2021 World 2.9%

• 3.0%

5.8% U.S. 2.3%

• 5.9%

4.7% Canada 1.6%

• 6.2%

4.2% Euro Area 1.2%

• 7.5%

4.7% Japan 0.7%

• 5.2%

3.0% China 6.1% 1.2% 9.2%

N AT I O N A L E C O N O M I C PA C K A G E S F O R C O V I D - 1 9 , I M M E D I AT E F I S C A L M E A S U R E S A N D D E F E R R A L S , % O F G D P, A S AT A P R I L 1

Note: Excludes sub-national government fiscal packages, and agency-provided liquidity support & guarantees. Source: National government press releases and media reports. 4

19.0% 10.7% 9.3% 8.9% 8.2% 2.8%

Germany Australia Denmark United States Canada United Kingdom

Spending and tax measures taken by provinces Actions taken by Federal Govt since April 1

11.7% 12.1%

U.S. Govt actions since April 1 + 2.0 % + 1.5 % + 3.2%

F I N A N C I A L C O N D I T I O N S D E T E R I O R AT E D S U D D E N LY

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C O M M O D I T Y P R I C E S H AV E FA L L E N S H A R P LY

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D E C L I N I N G D R I L L I N G A C T I V I T Y P O I N T S TO W E A K E R I N V E S T M E N T I N T H E O I L A N D G A S S E C TO R

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H O U S E H O L D A N D B U S I N E S S C O N F I D E N C E H AV E FA L L E N S H A R P LY

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M A S S I V E B . C . J O B L O S S E S I N M A R C H – W I T H M O R E TO C O M E

9 Source: Statistics Canada, Labour Force Survey, Business Council for projections, SA= seasonally adjusted.

2000 2100 2200 2300 2400 2500 2600 2700 Jan 15 Jan 16 Jan 17 Jan 18 Jan 19 Jan 20

B.C. employment monthly, SA, 000s scenarios for B.C. employment B.C. employment plunges by 132,000 in March

J O B L O S S E S A R E I N T H E P R I VAT E S E C TO R 95 100 105 110 115 14 15 16 17 18 19 20

B.C. employment public & private sectors, indexed Jan 2014=100

10 Latest: March 2020. seasonally adjusted; Source: Statistics Canada, Labour Force Survey.

U N E M P L O Y M E N T R AT E S O A R S I N 2 0 2 0

Sources: Statistics Canada Labour Force Survey and Business Council for 2020 projections. 11

2 4 6 8 10 12 14 16 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20

B.C. unemployment rate, %

The unemployment rate will likely surpass 11% and could rise to 15%

Y E A R S O F J O B G R O W T H W I L L B E E R A S E D I N 2 0 2 0

Sources: Statistics Canada Labour Force Survey and Business Council for 2020 projections. 12

1,500 1,700 1,900 2,100 2,300 2,500 2,700 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20

B.C. employment, 000s

Estimates suggest employment in B.C. could fall between 180,000 and 300,000 jobs in 2020 – the steeper decline would put B.C. back to 2012’s level and not much above total employment in 2008

J O B L O S S E S S P R E A D A C R O S S A L L A G E G R O U P S , B U T Y O U N G E R W O R K E R S H I T D I S P R O P O R T I O N AT E LY

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• 50.30
• 51.80
• 30.30
• 60
• 50
• 40
• 30
• 20
• 10

15-24 25-54 55 and over B.C. employment by age cohorts, change February to March, 000s

• 14.7
• 3.2
• 5.3
• 16
• 14
• 12
• 10
• 8
• 6
• 4
• 2

15-24 25-54 55 and over B.C. employment by age cohorts, February to March % change

seasonally adjusted Source: Statistics Canada, Labour Force Survey. Table 14-10-0287-01.

T W O E C O N O M I C S C E N A R I O S F O R B R I T I S H C O L U M B I A

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Economic activity will fall significantly in 2020, with the downturn and job losses concentrated in the March-June period -- but some weakness to the end of the year

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British Columbia’s GDP (adjusted for inflation) declines by 7-12% under two different scenarios modelled by the Business Council. For context, the economy expanded by 1.8% in 2019. And during the 2009 recession, GDP fell by 2.6% Scenario 1

• Most shuttered B.C. businesses resume operations (but some do not) by Q3. The

global economy hits bottom by summer and then starts to rebound. Under this scenario, the B.C. economy contracts by 7.3% in 2020 and job losses reach ~15% Scenario 2

• Virus cases increase again in the fall, leading to the reintroduction of some

restrictions and closures. The global downturn lasts through most or all of 2020. Under this scenario, the B.C. economy shrinks by 10-12% and job losses reach 20- 25% at the worst point in the coming months

W H I C H B . C . I N D U S T RY S E C TO R S TA K E T H E B I G G E S T H I T ?

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Regardless of which scenario plays out, the same B.C. industry sectors experience the steepest declines in production and overall business activity:

• Air transportation
• Accommodation (hotels, motels, etc.)
• Hospitality (restaurants/foodservices; bars and pubs)
• Entertainment, leisure and recreation services
• Film and television production
• Advertising, public relations and related services
• Manufacturing
• Real estate services
• Legal and accounting services
• Retail trade (other than hospitality)

Sources: Business Council of B.C., “Preliminary Estimates of the Impact of COVID-19 and Related Containment Measures on the B.C. Economy in 2020,” available at: www.bcbc.com.

W H AT A B O U T T H E C O N S T R U C T I O N S E C TO R ?

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Under our baseline scenario, where overall GDP adjusted for inflation falls by 7.3% in 2020:

• Aggregate construction sector GDP drops by 11-12%, led by residential

building (-20%)

• Small decline in non-residential building construction GDP as many

companies reduce capital spending and some current project work slows (e.g., LNG Canada, Site C)

• Repair construction GDP also declines (~15%) in 2020, as some planned

work is postponed or cancelled

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Note that B.C. businesses collectively are scaling back capital investment in the short-term, which will hit the construction industry in 2020

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However, many ongoing construction projects are continuing to advance, and the B.C. government has not ordered a shut-down of the industry

Sources: Business Council of B.C., “Preliminary Estimates of the Impact of COVID-19 and Related Containment Measures on the B.C. Economy in 2020,” available at: www.bcbc.com.

G O V E R N M E N T S U P P O R T P R O G R A M S TO A S S I S T A F F E C T E D B U S I N E S S E S

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Canadian government

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Canada Emergency Wage Subsidy (75% up to $847/week; effective March 15 and runs through June 6, 2020). Designed to encourage businesses not to lay

• ff employees. Open to all businesses and non-profits experiencing COVID

related revenue declines

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Canada Emergency Business Account (up to $40,000 in interest free loans for firms with payrolls up to $1.5 million; $10,000 is forgivable if $30,000 is repaid by December 31, 2022)

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Business credit availability programs (Export Development Canada; Business Development Bank)

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Some support for firms unable to pay rent

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Tax remittance and customs duty deferrals (not reductions or waivers) Note: Compared to several other advanced economies, Canada is doing less to support hard-hit businesses and industries

G O V E R N M E N T S U P P O R T P R O G R A M S TO A S S I S T A F F E C T E D B U S I N E S S E S

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B.C. government

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Tax remittance filing and payment deadlines are extended (PST and EHT)

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50% reduction in provincial school tax rates for commercial and industrial properties for 2020

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Temporary relief on B.C. Hydro payments

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Carbon tax freeze…but only for one year Note: BCBC is urging the province to do more to help business and industry, including exporters, survive the current downturn. This includes halting all new policy and regulatory initiatives that would result in higher costs for business; rebating B.C. Hydro payments for the first 6 months of 2020 to firms that can demonstrate hardship related to COVID-19; rolling back all municipal business property tax increases implemented or planned for 2020; and establishing a fund to assist SMEs forced to shutter their business in covering their fixed costs for a period of 3-4 months

B . C . E C O N O M I C R E C O V E RY A N D R E B U I L D I N G P L A N

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Policymakers need to give top priority to economic recovery/rebuilding for the next two years

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The province will be fighting for every dollar of incremental GDP and every new/restored job for the next 18-24 months as we dig out from a deep hole

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Economic recovery/rebuilding should start with selectively re-opening economic sectors once the virus threat has abated (not disappeared), as is now happening in China, Korea and some EU countries – with some US states set to follow by mid-May

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Job one is accelerating and advancing development and investment projects across the economy to kick-start economic and job growth. This includes residential development projects, maintenance/repair of public sector capital assets and infrastructure, and significant investments across all industries where companies are prepared to move quickly

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Delay and bureaucracy are the enemies of recovery

B . C . E C O N O M I C R E C O V E RY A N D R E B U I L D I N G P L A N

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Construction has an important role to play in both the initial recovery phase and in positioning B.C. for greater prosperity over the medium term: 1. Construction is a large sector that employs more than 230,000 British Columbians and pays above-average wages/salaries 2. Many private sector projects (residential and non-residential) can move ahead quickly. This includes TMX, LNG Canada, the Coastal Gas Link pipeline, investments announced by Fortis BC, mines, etc. It also includes multi-family residential projects mired in municipal red tape 3. The government controls the timing and sequencing of significant public sector capital projects 4. Building new and refurbishing existing physical infrastructure (transportation, communications, energy) is essential to strengthen the foundations for economic success and enhanced competitiveness

M O S T L A R G E B . C . E M P L O Y E R S H AV E S E E N S I G N I F I C A N T D E C L I N E S I N S A L E S V O L U M E S

Sources: BCBC. 21

0% 5% 10% 15% 20% 25% 30% Significantly increased Slightly increased Little or no impact Fallen up to 10% Fallen by 11-25% Fallen by 25-49% Fallen by 50%-74% Fallen by 75%-99% Fallen by 100% As a result of COVID-19, how have your sales volumes changed over the past two weeks? % of respondents (n=44)

M A N Y L A R G E B . C . E M P L O Y E R S P L A N TO R E D U C E C A P I TA L I N V E S T M E N T A N D S TA F F I N G

Sources: BCBC. 22

To date, how has COVID-19 impacted your business? What impacts on your business from COVID-19 do you expect over the next two weeks? (Select all that apply)

% of respondents (n=44) 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% Hire more employees Increased sales volumes New contracts or tenders No impact Closed permanently Other Introduced new product or service Closed temporarily Deferred/cancelled R&D Increased digital/e-commerce… Deferred/cancelled marketing projects Cancelled contracts or tenders Laid off employees Reduced staff hours Increased operating costs Deferred/cancelled capital projects Decreased sales volumes Expected over next 2 weeks Impacted already

TO P F E D E R A L P R I O R I T I E S S H O U L D B E T H E F U N C T I O N I N G O F S U P P LY C H A I N S , F I N A N C I A L A N D C R E D I T M A R K E T S

Sources: BCBC. 23

What are the top 3 business support measures within the FEDERAL government’s jurisdiction that would be most helpful in keeping your business operational?

0% 10% 20% 30% 40% 50% 60%

Provide increased EI for laid off employees Other Further deferral of due dates for business tax payments Further, enhanced wage subsidies to employees with reduced hours Direct payments to affected businesses Ensure that logistics continue to function (ports, railways, trucking, air service) Defer, delay or cancel planned legislative and regulatory changes Immediately reduce rates for EI, company tax, personal tax, GST, other levies and charges Ensure that credit markets and the financial system continue to function Ensure that the supply chain continues to function (i.e. suppliers of intermediate goods and services and raw materials remain operational)

TO P P R O V I N C I A L P R I O R I T I E S A R E TO R E D U C E TA X & R E G U L ATO RY B U R D E N S , A N D TO D I R E C T LY S U P P O R T H A R D - H I T S E C TO R S

Sources: BCBC. 24

0% 10% 20% 30% 40% 50% 60%

Speed up the payment of invoices submitted to the government (and other public entities) by B.C. firms that sell goods/services to the public sector Other Assist SMEs with up-front costs of adopting remote work options Roll back B.C. Hydro rates for 1-2 years Collaborate with property owners and tenants to help businesses unable to pay rent Defer tax due dates facing B.C. businesses Freeze business municipal property taxes and allow payment deferral Direct support to B.C.'s hard-hit industries Defer, delay or cancel planned legislative and regulatory changes Reduce tax rates facing B.C. businesses and households

What are the top 3 business support measures within the PROVINCIAL government’s jurisdiction that would be most helpful in keeping your business operational?

S U M M A RY O F K E Y P O L I C Y M E A S U R E S ( A S O F A P R I L 1 3 / 2 0 )

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Fiscal policy to support households and businesses

Government of Canada*

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Increased Canada Child Benefit for the 2019–20 benefit year

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Paid one-time enhanced goods and services tax credit

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Introduced Canada Emergency Response Benefit and Indigenous Community Support Fund

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Launched Canada Emergency Business Account

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Introduced Canada Emergency Wage Subsidy

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Extended maximum duration of Work-Sharing program

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Established Business Credit Availability Program through the Business Development Bank of Canada and Export Development Canada

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Increased lending capacity for Farm Credit Canada

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Deferred business and personal income tax payments (until September 1, 2020) and sales tax remittance and customs duty payments (until June 30, 2020)

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Reduced minimum withdrawals for registered retirement income funds

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Implemented temporary enhancements to the Canada Summer Jobs program

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Established a six-month interest-free moratorium on repayment of National Student Loans Provincial, territorial and municipal governments:

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Implemented transfers, rebates and subsidies to businesses, households and community organizations

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Deferred taxes and student loan payments and interest

* For more details on the Government of Canada’s COVID-19 economic response, see Canada’s COVID-19 Economic Response Plan. Source: Bank of Canada, Monetary Policy Report, April 2020.

S U M M A RY O F K E Y P O L I C Y M E A S U R E S ( A S O F A P R I L 1 3 / 2 0 )

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Financial policy to support lending

Office of the Superintendent of Financial Institutions*

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Lowered the Domestic Stability Buffer by 1.25 percentage points to 1.00 percent of risk-weighted assets

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▪ Introduced additional measures of regulatory flexibility for federally regulated financial institutions Government of Canada

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Launched Insured Mortgage Purchase Program through the Canada Mortgage and Housing Corporation

* For more information, see the Office of the Superintendent of Financial Institutions’ measures to support the resilience of financial institutions. Source: Bank of Canada, Monetary Policy Report, April 2020.

S U M M A RY O F K E Y P O L I C Y M E A S U R E S ( A S O F A P R I L 1 3 / 2 0 )

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Bank of Canada actions to support the economy and financial system*

Monetary policy

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Lowered the target for the overnight rate by a cumulative 150 basis points to the effective lower bound

• f 0.25 percent

Government of Canada

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Launched Bankers’ Acceptance Purchase Facility

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Introduced program to purchase Canada Mortgage Bonds in the secondary market

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Introduced Provincial Money Market Purchase program

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Introduced Commercial Paper Purchase Program

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Launched program to purchase Government of Canada securities in the secondary market (minimum of $5 billion per week, across the yield curve)

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Enhanced term repo operations

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Activated Contingent Term Repo Facility Liquidity support for individual financial institutions

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Coordinated with international policy-makers for US-dollar liquidity and announced that a US-dollar term repo facility would be made available on a contingency basis (should the need arise)

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Launched Standing Term Liquidity Facility

* For more details on the Bank of Canada’s response, see COVID-19: Actions to Support the Economy and Financial System. Source: Bank of Canada, Monetary Policy Report, April 2020.