Without a doubt, the COVID-19 pandemic is a black swan event for global and Canadian economies. People are self-isolating, businesses are shutting their doors, and workers are losing their jobs. Industries such as tourism, accommodation, recreation, transportation, retail, and restaurants are bleeding. Many local small and medium-size businesses cannot meet their short-term cash needs.
According to a recent BC Chamber of Commerce survey of 8,000 respondents:
- 90% of businesses are “currently being impacted by COVID-19” and of those impacted, 83% are seeing a “drop in revenue, business, or deal flow.”
- 91% anticipate a further “decrease in revenue in the near term.”
- 73% of businesses expect their revenues will drop by 50% or more (with nearly a quarter saying revenues will drop by 100%).
- Half of the respondents say they will be “temporarily shutting down” their offices.
- 64% of respondents expect to reduce their staff by more than half (with a quarter saying they will be reducing their staff by 100%).
In the meantime, on March 27, the Bank of Canada cut interest rates to 0.25%, the third decrease of 50 basis points since March 4. Many organizations, including the Canadian Chamber of Commerce, are predicting a severe downturn especially in the second quarter of this year with a tepid bounce back by year-end. TD Economics projects that Canada’s unemployment rate will temporarily soar to an average quarterly level of 11.7% in the second quarter before heading back to around 6.2% by the end of this year. To help tackle this public health crisis and an economic fallout, different levels of governments have stepped up efforts to assist businesses during these difficult times.
Given a highly uncertain economic backdrop in Canada and globally, how should leaders make key business decisions? We recommend the following three-pronged approach.
1) Consider the credibility of the information and the source as there’s a lot of information available, but not all of it is credible. Therefore, it’s imperative to scrutinize the information you receive and ensure it comes from credible sources:
- Is the data source reputable?
- Does the source have an expertise in the field?
2) Assess likelihood and timing of prediction/opinion through a critical lens:
- Is this information helpful in the context of relief or recovery type of measures?
- Is this a sector-specific prediction/opinion?
3) Assess how to leverage information to make business decisions over a long time horizon:
- What are the long-term trends in your industry/sector/geography you should be aware of post-pandemic?
- What are the long-term trends globally you should be aware of post-pandemic?
A detailed approach
First, COVID-19 analysis provided by leading market intelligence firms such as Oxford Economics is a great starting point for actual macroeconomic data. Economic analysis from Canada’s major financial institutions can also offer great insights about the future state of the Canadian economy.
While macroeconomic data and analysis is useful, regional and industry-specific data is even more topical these days. For example, the Canadian Urban Institute (CUI) recently launched City Share Canada and City Watch Canada to relay city-specific data and community/neighborhood-based responses to the COVID-19 pandemic. CUI’s goal is to galvanize sharing of best practices on how to tackle key socio-economic issues from social and digital inclusion to how communities can facilitate outdoor respite for people confined to small urban dwellings.
Other useful sources of information from a policy and advocacy perspective are available from organizations such as the C.D. Howe Institute, the Canadian Chamber of Commerce, local chambers of commerce, and boards of trade, as well as national and regional industry organizations such as Business Council of Canada and Tourism Industry Association of Ontario (TIAO) to name a few.
Our recommendation for business leaders is to access information from several reputable sources of information that offer national, regional, and industry-specific perspectives.
Second, if history of previous pandemics such as the Spanish Flu and major downturns such as the global financial crisis are any indication, our economy will bounce back. The reality of the situation is that no one knows how long this global pandemic will last and what the impact will be on various industry sectors.
Some sectors will be able to reinvent themselves to the new way of doing business while others will not. For example, we’re already seeing companies pivoting to ecommerce. As a result, ecommerce will be even more prevalent in Canada than before the crisis. In the meantime, the government will continue to intervene with significant fiscal and liquidity measures to prop up specific sectors of the economy that are struggling.
Our recommendation is for business leaders to be equipped with timely and accurate information about various government support programs targeting their industry sector. Moreover, your ability to access real-time data on consumer behaviour and buyer information will help to understand how to adjust your business model temporarily or permanently and can put you ahead of your competitors.
Third, long-term trends in play prior to COVID-19 will prevail and will require innovative solutions. Canada will continue to attract top talent. As a result, policy makers and senior business leaders will need to devise effective strategies to integrate new immigrants into the economy and retrain and upskill existing talent.
Tackling a massive physical infrastructure backlog will be top of mind as a way to get the economy going and create high-paying jobs. More than ever, investment in digital infrastructure will help bridge urban and rural divide and unable Industry 4.0 sectors. Canada’s ability to near-source advanced manufacturing is critical to human survival sectors such as pharmaceuticals and medical devices will be top of mind.
Distance learning will become a new norm not only for children, but also for adults. Canadian businesses’ ability to scale up and go global will also be critical as a way to bounce back from a major economic fallout.
Our recommendation is to keep an eye on long-term trends that were prevalent in Canada and globally long before the onset of COVID-19 pandemic. This task can be easily achieved by conducting environmental scans, market assessments, and economic impact analysis.
How BDO can help
Our Strategy & Operations team has helped a number of organizations pivot and adapt to a changing economic environment. We provide the following services:
- Feasibility and cost benefit analysis
- Economic modelling, forecasting, and scenario planning
- Environmental scans
- Economic impact analysis
- Strategic and implementation planning
- Sector strategies
- Market demand assessments
- Developing funding/financing applications
Natasha Apollonova, Senior Manager, Strategy & Operations
Kelly Campbell, Partner, Strategy & Operations