Jock Finlayson on the economic stories that dominated 2020, and will shape 2021.
The past year undoubtedly will be one for the record books, for all the wrong reasons. The arrival of a global pandemic in March quickly upended the Canadian and B.C. economies, triggering a sharp downturn that caught almost everyone off guard. Since early summer, the province’s economy has been recovering – but we are left with scars as well as a great deal of uncertainty about what lies ahead.
Within that larger context, the economic stories below grabbed and held our attention as the year 2020 unfolded.
Stomach-churning job losses
The February-April period brought job losses on a scale never seen before. In British Columbia, more than 400,000 jobs disappeared – most temporarily – within the span of two months, as government-mandated lockdowns and alterations in consumer and business behaviour led to the shuttering of broad swathes of the economy. Seemingly in an instant, we moved from a world of labour scarcity and near record-low unemployment rates to one where hundreds of thousands of British Columbians suddenly found themselves reliant on government income support programs.
Followed by an impressive employment rebound
Encouragingly, the labour market carnage did not last long (see Figure 1 below). By November, the province was down “just” 37,000 jobs compared to February 2020, with unemployment back at roughly 8% compared to a 13.6% peak in May. Some broad industry sectors have even posted net job gains in 2020, including natural resources, manufacturing, advanced technology and professional, scientific and technical services.
In contrast, several large consumer-facing service industries continue to report employment levels far lower than at the start of the year – e.g., accommodation and foodservices, arts and entertainment, transportation services (especially air travel), and some segments of retail. In aggregate, the tourism industry has suffered the biggest blow to jobs and business activity of any major sector of the B.C. economy.
Unprecedented (and unsustainable) government fiscal stimulus
Staring at a potential calamity, the federal and provincial governments acted quickly to implement “big bang” stimulus programs aimed at containing the virus and keeping households and businesses afloat. Most of the heavy lifting fell to Ottawa, which went from a planned budget deficit of $20-25 billion in 2020-21 to what now looks to be a $400 billion gusher of red ink (equivalent to ~17% of GDP).
Part of this is due to sagging tax revenues, but most of it reflects “emergency” measures adopted over the course of 2020. The accumulated federal debt has now surpassed $1 trillion, with further jumps in store in the next 2-3 years given the Trudeau government’s spendthrift proclivities. Meanwhile, B.C. expects to run a deficit of around $14 billion this year, compared to the slim operating surplus predicted at the time of the February 2020 budget.
As Figure 2 below shows, Canada tops all other developed countries in the magnitude of government fiscal support served up in the wake of COVID-19. Some of this has been wasted or poorly targeted, including billions of dollars in Canada Emergency Response Benefits (CERB) directed at people with no real attachment to the labour force and wage and other subsidies doled out to companies that have continued to pay regular dividends. However, in general, an outsized fiscal response was appropriate given the tumultuous and alarming circumstances of 2020. Now comes the hard work of paring back unsustainable government spending programs.
The world discovers the joys of staying home
This year saw a dramatic shift toward working-from-home for hundreds of millions of white-collar employees across the advanced economies, as governments and employers struggled to manage the health risks posed by the virus. Eight months after COVID-19 arrived in B.C., the still mostly empty office towers of downtown Vancouver and Victoria attest to the trend. Many students, particularly at the post-secondary level, have also been studying remotely.
Looking ahead, most analysts and business leaders believe that remote work – which was already slowly catching on pre-pandemic – will retain its appeal once the virus has been eradicated, even though lots of employees are likely to return to their normal workplaces. A recent study by the McKinsey Global Institute predicts that 15-20% of workers in the advanced economies “will be spending more time at home and less in the office” in the wake of COVID-19; this is a far higher share than pre-pandemic.
Working from home is mainly an option for relatively well-educated and well-paid employees engaged in “knowledge” work, who don’t typically need to interact with consumers/clients on a face-to-face basis or perform manual tasks as part of their job. The sectors where working from home has the greatest potential are finance and insurance; professional, scientific and technical services; post-secondary education; IT/telecommunications; and some segments of government and public administration.
If a larger portion of the white-collar labour force ends up toiling from home on an ongoing basis, this is certain to have knock-on consequences.
For one thing, demand for office space presumably will weaken as many organizations re-assess and scale back their real estate footprint, thereby putting downward pressure on office lease rates. The impact of this will reverberate through restaurants, shops and other services that cater to the needs of legions of office workers.
Municipal property tax collections are apt to take a hit if the value of office buildings diminishes and central business districts shed restaurants, shops, and bars. The growing popularity of working (and studying) from-home could also be felt in residential real estate markets, with rising demand for suburban homes – and for real estate in smaller towns – while “downtown” condos and other forms of dense urban living become less popular.
Finally, if workers do spend more time at home, commuting patterns will change and there may be a dampening effect on the use of public transit services.
Spotlight on technology
The pandemic has highlighted how technology-powered innovations have enabled people and organizations to respond to the shocks created by COVID-19 while also accelerating the development of novel tests, treatments and vaccines for the virus itself.
Rapid growth in the use of digital platforms and related technologies has played a central role in supporting the remarkable expansion of remote work and off-campus learning. Zoom, Microsoft Teams and Google Meet have become familiar to hundreds of millions of people in 2020; all have seen dramatic growth in use by households, businesses, students, and other organizations.
At one point last spring, the market value of Zoom Communications – a leading provider of digital platforms – exceeded that of the seven largest publicly-traded American and European airlines combined. At the same time, the biotechnology and pharmaceutical industries have risen to the challenge of finding treatments and vaccines to address the COVID-19 crisis.
There are B.C. angles to these technological developments. The province has strengths in the digital sector and also in biotechnology/life sciences. Vancouver is home to Canada’s Digital Supercluster, which is working to speed the adoption of digital platforms, tools and related technologies across the private and public sectors. British Columbia also hosts biotechnology and biopharmaceutical companies that have been front and centre in the search for tests, therapies, and vaccines for COVID-19.
Coming out of the pandemic, B.C. policymakers should be looking to revisit relevant aspects of public policy to support the scaling up of B.C. technology companies in all sectors, including digital and biotechnology. This will require changes to provincial taxation, public procurement and industrial development policies and programs to better align them with the goal of making B.C. a top-ranked jurisdiction for growth-oriented technology firms.
Jock Finlayson is executive vice-president of the Business Council of British Columbia.
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