Additional Q&A

APEC’s President and CEO, David Chaundy, answers some further questions from APEC’s webinar on April 28.

Is APEC allowing for a 2^nd and 3^rd wave of COVID-19 in our projections?

There are many unknowns about the recovery that make it difficult to provide detailed and firm projections. This is why we emphasized the wide range of potential outcomes in the Bank of Canada illustrative forecast. The unknowns include when provinces will start re-opening, how they will relax restrictions on business activity, and how long before most restrictions are eliminated. Interprovincial and international travel will be much later in the restart process. This will impede the recovery for Atlantic exporters.

A second or third wave of COVID-19 is possible. Yet these are hard to forecast if we don’t know when, how severe they will be and how long they will last. Some commentators indicate that life may not fully normalize until a vaccine or treatment is available, which could be 1-2 years. A loosening and then tightening of restrictions is not a cycle that would be good for business or the economy. Firms need clarity and certainty. It’s best for governments to go slow and not have to tighten again, instead of relaxing too quickly and having to tighten again.

Our illustrative forecast for the recovery in GDP assumes a slow, gradual recovery. Our estimate for the decline in Atlantic Canada’s GDP in 2020 suggests a slower recovery than most other forecasters currently project. There are risks the recovery could be slow and uneven. Businesses need to plan for a range of scenarios until the picture becomes clearer.
 

Why do you suggest businesses with face-to-face operations like private health care professionals (dentists, optometrists, massage therapists) may open later when some jurisdictions are opening these businesses early on?  

It depends on the risk model being adopted and how risk is assessed for different groups. Large groups and face-to-face activities were among the first activities to be shut down so they may be perceived as higher risk during the reopening. It depends on how public health officials assess the risk and how personal protective equipment and modified working practices can be used to minimize risk. Concerns about broader health risks if these activities are shut down for longer may also be a factor. If the COVID-19 risk can be lowered or is now perceived to be smaller as the number of cases falls, then these businesses could reopen sooner.
 

What will the recovery look like?

It will be uneven due to varying health risks facing businesses and industries. Some sectors will be able to open before others. Some may be able to operate partially with some physical distancing adjustments and personal protective equipment. But others may need a full relaxation of measures to return to full output. Businesses and industries will examine what they can do differently to ensure they resume and increase output as soon as possible, while minimizing risk of COVID-19 spreading among their workforce.

There are several other key factors to keep in mind. First, Atlantic Canadian firms depend on interprovincial and international markets. How quickly our trading partners restart their economies and allow travel to resume will have significant impacts on the speed and extent of the recovery in Atlantic Canada. A slow return to international business travel and tourism will hinder the recovery in demand and the ability of firms to service international clients. Prolonged restrictions on the movement of temporary foreign workers and arrival of new immigrants will also constrain the region’s labour supply, although the overall demand for new workers will likely be weaker for some time.

Second, the risk approach that public health officials seem to be adopting in their plans to ease restrictions do not take account of the interconnected, supply chain nature of our industries. Demand will be a key determinant of output, even if businesses can safely resume operations. Until people start eating out at restaurants here and in our export markets, our food processors will not be able to return to full production. As a result, our agriculture and fishing industries will also not be able to return to full production. Similarly, until individuals start flying and driving again, demand for fuel from our refiners will remain subdued, and so will demand for crude oil production.

Third, not all firms will survive the shutdown. This will restrict supply capacity, at least in the short term.  Not all individuals will be re-hired and so household incomes may by lower for a prolonged period. Lower incomes and increased debt will dampen demand. Consumer confidence and whether people feel safe shopping, eating out, or taking a vacation will also affect the speed of the recovery.
 

Will the economy look the same after the recovery?

Yes and no. It will likely look very similar at the macroeconomic level – the same industries and the same type of activities. However, there will probably be some permanent effects, especially for individual households and businesses. We will likely see increased online shopping and business-to-business ecommerce. We may see more individuals working from home. Global value chains may be restructured due to greater risks to travel and cross-border trade. Businesses are likely to review and approach their operations differently, seeing new opportunities or ways of working. Digitalization is likely to accelerate. We may see social programs being re-evaluated.