Posted: 17 Apr. 2020 5 min. read

China’s Q1 contraction, Canadian SMEs still at risk, more remote work, more fiscal measures

In the first quarter of 2020, China’s economy shrank for first time in four decades. The COVID-19 outbreak led to a 6.8 percent contraction in economic output from the level a year earlier. Fixed investment and consumption dropped. The urban unemployment rate jumped almost a full percentage point to 6.2 percent in February. The Chinese government has begun pumping liquidity into their banking system to boost lending to struggling businesses and has introduced tax breaks of 1.6 trillion renminbi (US $226 billion). While the first quarter results were negative, Chinese officials have since reopened factories and shops in cities including Wuhan, where the coronavirus outbreak started. Economic activity has improved but has not returned to normal.

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At home, the Canadian Federation of Independent Business (CFIB) is running weekly surveys of their membership. The April 15 release had 10,969 participants. The statistic that jumped out to me was that 44 percent of respondents felt that their business would not survive if the lockdown lasts until the end of May. The survey has a lot of interesting perspectives, so it is worth reading it on the CFIB website.

Statistics Canada released some perspectives on remote work. Approximately 4.7 million Canadians who do not usually work from home did so during the week of March 22 to 28. A key question for Canada’s economic recovery and growth is how much work can be done remotely. The latest Labour Force Survey showed the greatest job losses were in sales and services positions—roles where the ability to work remotely may be limited. In contrast, employment in sectors where working from home is more possible such as management, natural and applied sciences, business, finance, and administration could expected to be more resilient.

In terms of new Canadian federal government policy announcements, a long awaited program to help the energy sector was announced today. The government will provide $2.4 billion to help laid-off workers clean up orphan oil-and-gas wells and stop the leakage of methane gas. The aim is to create up to 10,000 jobs in the hard-hit energy sector. This is beneficial because it not only provides support to the oil patch but it also addresses an environmental issue. However, the economic blow to the oil and gas from the prevailing low prices will be severe, and the sector will continue to struggle in the coming quarters.

The Canadian federal government is also offering $250 million in financial support to the technology sector through its Industrial Research Assistance Program as part of $1.2 billion in new funding for entrepreneurs. This is a notable announcement, as we have been stressing in recent days that startups were not likely to benefit from previous government programs and that some technology companies often don’t have steady revenues.

BC is providing enhanced relief for businesses by reducing most commercial property tax bills by an average of 25 percent. For businesses, they are further reducing the school property tax rate for commercial properties to achieve an average of 25 percent reduction in the total property tax bill for most businesses, providing up to $700 million in relief. BC is also postponing the date that late payment penalties apply for commercial properties to October 1, 2020, to give businesses and landlords more time to pay their reduced property tax, without penalty.

An additional dimension to the economic challenge COVID-19 has brought about is the impact on municipalities, which can have limited fiscal flexibility. BC is providing support for local governments with new measures to address cash flow and revenue shortfalls, including: authorizing local governments to borrow, interest-free from their existing capital reserves to help pay for operating expenses such as employee salaries. Local governments can also delay provincial school tax payments until the end of the year. These measures should help to provide local governments with greater flexibility to carry debt for an additional year.

Quebec is granting $ 1.3 million to the firm Ferme d'hiver to develop innovative technology to improve food self-sufficiency. This investment adds to the measures put in place by the Government of Quebec since the start of the crisis to stimulate local purchasing.

Economic Insights

A regularly updated snapshot by Deloitte Economics that provides commentary from Chief Economist, Craig Alexander on the latest developments shaping Canadian and international economies including, economic growth, business investment, trade, and market activity. Deloitte analysis gives you the knowledge to tackle the most challenging business issues of today.

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