The impact of the novel coronavirus has not spared a single person or business in Canada, but while the current and post-crisis future looks grim, the economy will roar back to life when activity resumes.
Today, we live in unprecedented times. Much of the social aspect of our society has been shuttered in an aim to stop the spread of the coronavirus.
Indeed, COVID-19 has crept up on all of us and quickly grown to become one of the worst health and economic crises in recent history. Virtually every country on earth has been affected.
It has left governments around the globe scrambling to contain the spread of the virus, and has catapulted the global economy into a deep downturn that could very well dwarf the worst of the financial crisis of 2008. Leaders of the world are faced with the herculean task of fighting a deadly virus, while trying to avert economic Armageddon.
Here at home, the COVID-19 pandemic is having a cascading and disastrous impact on the Canadian economy. Every sector of the economy has been hard-hit and no business has been spared. The federal and local governments, to their credit, have recognized the severity of the current situation and have imposed strict physical distancing measures to limit transmission.
They have also swiftly unveiled a wide range of programs aimed at helping businesses and workers stay afloat.
Fiscal supports such as the federal wage subsidy program, the GST/HST deferrals and the credit availability program will greatly assist businesses to weather the current economic storm.
In addition, the Bank of Canada has cut its policy interest rate, in an unparalleled manner, by 150 basis points to 0.25 per cent and has undertaken large scale asset purchases, commonly known quantitative easing and a first in Canada. These monetary policy actions will inject significant liquidity in the financial system and facilitate recovery.
It has left governments around the globe scrambling to contain the spread of the virus, and has catapulted the global economy into a deep downturn that could very well dwarf the worst of the financial crisis of 2008.
That said, we are navigating through uncharted waters and we are not over the hump yet. The severity and duration of this crisis remains unknown, and policymakers need to remain nimble to rapidly take action to support businesses and workers. In an environment of existing low-interest rates, the capacity of monetary policy to stimulate the economy is limited. Therefore, the federal government will have to use the full force of its fiscal power to bridge the gap throughout this crisis and during the recovery.
In the automotive sector, sales have started to reflect the deteriorating economic conditions as a result of COVID-19. New vehicle sales declined by an estimated 48 per cent in March.
New vehicle sales were on track for a solid first quarter until mid-March, when the necessary strict containment measures and mandatory closure of non-essential businesses began to be implemented across the country, to slow widespread community transmission and to avoid overwhelming our healthcare system capacity.
It is expected that, as the number of cases continues to rise, restrictions will be tightened and dealership operations will be halted or, in most cases, scaled back to repairs, maintenance, and online sales.
Thus, if Canada’s sales trajectory follows the same pattern as other countries such as China and Italy, when similar extreme containment orders took effect, sales in April and May could drop by up to 80 per cent.
All in all, the situation is fluid and evolving quickly and these projections are mainly dependent on the effectiveness of the containment measures and the government economic response.
While it is difficult to fully capture the extent of the impact of COVID-19 on this year’s vehicle market outlook, it is reasonable to assume that our pre-crisis market forecast no longer holds. Vehicle sales will continue to fall over the next couple of months.
However, the market will experience pent up demand post-crisis as OEMs will increase incentive levels and governments will introduce massive stimulus packages to jumpstart the economy. The market could drop by anywhere between 20 to 40 per cent.
The silver lining is that “this too shall pass”. And, when activity resumes, the economy will roar back to life. However, for that to occur we need to increase the availability of personal protective equipment for workers and significantly improve our testing, tracking, and contact tracing capacity so that if there are new cases in the community, we can quickly isolate and avoid a resurgence.
In closing, as I was writing this piece, public health authorities released the grim projections of cases and COVID-19 related deaths in Canada.
It is a sobering reminder that this pandemic is first and foremost a human tragedy. And, while every sector of the economy is reeling from the mammoth economic impact of COVID-19, we must continue to do our part to slow the spread of the virus and limit the impact on human life. Our individual actions coupled with governments’ health and economic response can change the outcome of this unprecedented crisis.
Stay home, buckle up, and we will get through this together!
