The impact of COVID-19 will cause British Columbia’s GDP to contract by 7.3% in 2020, according to a new report by Central 1 Credit Union. This exceeds the previous record contraction of 6.4% during the 1982 recession.
In March, when the pandemic reached the country, BC shedded 132,400 jobs, which increased the unemployment rate to 7.2%. The unemployment rate throughout 2020 is expected to average at 8%.
Sectors that are greatest hit include hospitality, food services, information and culture, recreation, and tourism and retail, with younger workers and females particularly impacted. While all sectors of the economy have been hit, these sectors account for the brunt of the declines.
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Many of those still employed in these sectors have seen their hours cut. Hours worked in BC dropped by 20% from both March 2019 and February 2020.
As well, most of the employment contracts were experienced in Metro Vancouver.
For context, during the 2008 recession, the worst single-month decline in employment across all of Canada was about 125,000 jobs. But the national employment losses from COVID-19 in March was in excess of one million jobs.
“This recession is like no other. Rather than supply or demand excesses, this downturn is largely by decree as the government combats the raging health crisis,” reads the report.
But compared to past recessions, the economic rebound from COVID-19 is expected to be relatively quick and strong, as the depressed economic conditions are due to artificial non-market conditions.
BC is forecast to see a GDP growth of 5.1% in 2021, and over 2.5% in both 2022 and 2023.
“The extent of the damage is still uncertain, although it is clear that this will be one of the deepest economic contractions on record. That said it is also anticipated to be brief, reflecting its nature as a health crisis and policy driven pause in the economy,” continues the report.
The credit union’s base case scenario for the recovery phase begins in late May, when governments in Canada are expected to allow segments of the economy to gradually reopen. The rate in growth of coronavirus cases continues to grow, but the rate of growth is slowing and trending well below the trajectories of the United States and Europe.
Within Canada, BC has faired far better than other large provincial jurisdictions due to “strong buy-in by residents” on early mitigation strategies to prevent the spread of the illness. To a certain extent, this is expected to contribute to the province’s economy recovery and confidence.
The continued need for physical distancing to prevent new breakouts or additional full-scale waves of the epidemic will slow down the pace of recovery. Businesses that rely on face-to-face engagement with their customers — such as retail, restaurants, and personal services — will be restrained due to physical distancing.
But analysts anticipate pent-up demand on consumer products will be unleashed in the second half of 2020.
Physical distancing and a certain degree of self-isolation will be required for some time; the overall recovery phase will be gradual until a vaccine is ready, which may not be for a year.
In particular, tourism will be non-existent into 2021, and the permanent closure of many small businesses will curtail the pace of the rebound.
Unprecedented extensive economic relief measures for businesses and workers will help accelerate the recovery, but for some businesses the support will be too little and too late.
The normal economic output levels prior to COVID-19 will not return until the middle of 2021.
BC’s residential real estate market will contract sharply in 2020, with home sales plummeting through the middle of the year. Home sale volumes could conservatively fall by 30% this year.
Overall, BC’s economic contraction will be less pronounced than some of the other provinces, which depend heavily on the oil sector. But BC is more dependent on tourism.
The national GDP will drop by 40% in the second quarter of 2020, while the full-year GDP contraction is expected to hover at 8% due to the forthcoming recovery over the last two quarters of the year.
“Overall, BC’s economy is still expected to ‘outperform’ the Canadian average for whatever solace that may bring,” reads the report.