A focus on the economic situation in Quebec

Presented by the Economic Advisory practice in Quebec.

At the time of this publication, the number of confirmed COVID-19 cases in Quebec totalled 6,101. While this number seems high for the province, remember that numbers of confirmed cases are tied to the number of tests conducted. 

On March 13, 2020, in an effort to fight the rising spread of COVID-19, the Government of Quebec declared a health emergency. In addition to the enacted federal restrictions, the Quebec government also imposed the following provincial restrictions:

• Indoor or outdoor gatherings of people has been prohibited since March 21.
• An official order to minimize non-priority activities and services has been in effect since March 25.
• A ministerial order restricting access to 12 administrative regions was announced on April 1.

As a complement to the federal economic measures, the Government of Quebec added the following measures:

• Various emergency financial assistance programs in the form of loans or guaranteed loans:
  • Concerted Temporary Action Plan for Businesses. This is a considerably large measure that provides a minimum of $50,000 in emergency assistance, in the form of loans or guaranteed loans, to help businesses with temporary cash flow issues arising from a supply problem or businesses that cannot conduct business due to the pandemic restrictions. It should be noted that there is a six-month moratorium on the principal repayment.
  • Businesses dealing with temporary cash flow issues may also request loan financing from the CDPQ, which is setting aside $4 billion for COVID-19-related assistance. These funds are earmarked for businesses seeking over $5 million in financing, that were profitable before the crisis, and that have promising growth outlooks.
  • Following its Canadian counterpart, the Autorité des marchés financiers du Québec (AMF) is relaxing liquidity and capital adequacy requirements for businesses in the financial sector. Aimed primarily at financial cooperatives in Quebec, these adjustments should ease loan granting conditions for individuals and businesses facing difficulties.
• Harmonization by Quebec with the federal administrative extensions:
  • For businesses and individuals, payments of tax balances and tax installments have been deferred to September 1.
  • For businesses, GST/QST payments have been deferred to June 30.
• Other easing measures:
  • Temporary Aid for Workers Program, which is granting $573 in lump-sum financial assistance to workers whose income has been reduced because they had to go into isolation after contracting the virus or showing symptoms. Note that this program applies only to workers not compensated by their employer or another federal assistance program, such as employment insurance for those who have lost their jobs.
  • Hydro-Québec has stopped applying administration charges for unpaid bills and will maintain service.
  • Various institutions such as Quebec’s workplace health and safety board, the commission des normes, de l'équité, de la santé et de la sécurité du travail (CNESST), are easing their payment and repayment terms. 

As part of our analysis, described below are highlights of the Quebec’s economic outlook as a result of COVID-19.

Our most recent projections for 2020 anticipate a 3.0% to 5.0% contraction of GDP in Quebec for the first quarter followed by a double-digit contraction in the second quarter. A recovery is expected to start at the end of this year and in early 2021.

This contraction of the provincial economy is a result of the imposed restrictions, which are severely affecting the services sector, which makes up close to 73% of the economy. Air transport and tourism businesses, in particular, will be the most affected by the current situation. This is even more concerning given that potential changes is consumer habits are likely, leaving uncertainty about the strength of the recovery.

However, the Quebec economy, which is not strongly tied to oil, may fare better than the western provinces as the price of oil has been doubly affected by the conflict between OPEC members and a reduction in global demand arising from the pandemic restrictions. Furthermore, Quebec’s economy will also be less affected than Ontario’s given a drop in demand in the Canadian automobile industry, which already experienced a 48% decline in sales between February and March.

As for Quebec’s private sector, given that small- and medium-sized enterprises account for about 88% of jobs, the recovery will clearly require a rebound by SMEs. At the same time, SMEs are the most vulnerable to temporary cash flow issues, and according to a March 30 survey published by the Canadian Federation of Independent Business (CFIB), 42% of SMEs are worried they may need to close permanently. As such, most of the federal and provincial efforts have focused on SMEs, as they are critical to Quebec’s economy and facing heightened financial risks. The SMEs that best withstand this crisis will be ready for the economic recovery in the second half of the year.