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 - PowerPoint PPT Presentation

APRIL 2020 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 ? www.bcbc.com | @bizcouncilbc

E X T E R N A L E C O N O M I C S E T T I N G 2 ▪ First modern global pandemic is sweeping the world ▪ Countries are at different stages in the infection/stabilization process ▪ Many governments have shuttered large parts of their economies to slow disease spread and protect public health – an unprecedented step The global economy is headed for a sharp – but hopefully temporary – recession, ▪ with a bigger drop in output than in 2008-09 ▪ For the advanced economies, consensus forecasts point to some recovery in the second half of 2020 extending into 2021 ▪ 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 ) 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% Sources: IMF, April 2020.

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 4 U.S. Govt 19.0% actions since April 1 12.1% 11.7% Spending and tax measures + 2.0 % taken by provinces + 3.2% 10.7% + 1.5 % Actions taken by Federal 9.3% Govt since April 1 8.9% 8.2% 2.8% Germany Australia Denmark United Canada United States Kingdom Note: Excludes sub-national government fiscal packages, and agency-provided liquidity support & guarantees. Source: National government press releases and media reports.

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 5

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 6

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 7

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 8

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 B.C. employment monthly, SA, 000s 2700 2600 2500 2400 B.C. employment 2300 plunges by 132,000 in March 2200 2100 scenarios for B.C. employment 2000 Jan 15 Jan 16 Jan 17 Jan 18 Jan 19 Jan 20 Source: Statistics Canada, Labour Force Survey, Business Council for projections, SA= seasonally adjusted.

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 10 B.C. employment public & private sectors, indexed Jan 2014=100 115 110 105 100 95 14 15 16 17 18 19 20 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 11 B.C. unemployment rate, % 16 14 The unemployment rate will likely surpass 11% 12 and could rise to 15% 10 8 6 4 2 0 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 Sources: Statistics Canada Labour Force Survey and Business Council for 2020 projections.

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 12 Estimates suggest employment in B.C. could fall B.C. employment, 000s between 180,000 and 300,000 jobs in 2020 – the 2,700 steeper decline would put B.C. back to 2012’s level and not much above total employment in 2008 2,500 2,300 2,100 1,900 1,700 1,500 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 Sources: Statistics Canada Labour Force Survey and Business Council for 2020 projections.

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 13 B.C. employment by age cohorts, B.C. employment by age cohorts, change February to March, 000s February to March % change 0 0 -2 -10 -4 -3.2 -20 -6 -5.3 -30 -8 -30.30 -10 -40 -12 -50 -14 -50.30 -51.80 -14.7 -60 -16 15-24 25-54 55 and over 15-24 25-54 55 and over 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 14 ▪ 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 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 o 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 o 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 ? 15 ▪ Regardless of which scenario plays out, the same B.C. industry sectors experience the steepest declines in production and overall business activity: o Air transportation o Accommodation (hotels, motels, etc.) o Hospitality (restaurants/foodservices; bars and pubs) o Entertainment, leisure and recreation services o Film and television production o Advertising, public relations and related services o Manufacturing o Real estate services o Legal and accounting services o 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 ? 16 ▪ Under our baseline scenario, where overall GDP adjusted for inflation falls by 7.3% in 2020: o Aggregate construction sector GDP drops by 11-12%, led by residential building (-20%) o 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) o Repair construction GDP also declines (~15%) in 2020, as some planned work is postponed or cancelled ▪ Note that B.C. businesses collectively are scaling back capital investment in the short-term, which will hit the construction industry in 2020 ▪ 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 17 Canadian government ▪ 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 off employees. Open to all businesses and non-profits experiencing COVID related revenue declines ▪ 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) ▪ Business credit availability programs (Export Development Canada; Business Development Bank) ▪ Some support for firms unable to pay rent ▪ 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 18 B.C. government ▪ Tax remittance filing and payment deadlines are extended (PST and EHT) ▪ 50% reduction in provincial school tax rates for commercial and industrial properties for 2020 ▪ Temporary relief on B.C. Hydro payments 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