Reopening Canada: The economy survived the crash, but making it thrive again will depend on all of us

Reopening Canada: The economy survived the crash, but making it thrive again will depend on all of us

[Financial Post – June 25, 2020]

‘Fundamentally, humans are scrappy and resourceful when faced with crises,’ one small-business owner says

“We survived.”

Chrissy Durcak, chief executive and founder of Montreal-based Dispatch Coffee, was talking about her company, but she could have been talking about the broader economy, too.

In April, the COVID-19 crisis was so terrible that the Bank of Canada couldn’t rule out the possibility that we were in the early stages of a depression. While not its base case, the central bank said the damage from an extended lockdown could be so great that “future growth would be severely dampened, with economic activity remaining below its pre-pandemic level for an extended period.”

We appear to have avoided the worst-case scenario.

The hundreds of billions of dollars that the central bank and the federal government pumped — and continue to pump — into the economy created a bottom. Employers created more than 290,000 jobs in May, the biggest increase in records that date to the mid-1970s. The recession was brutal, but short.

Now, as social distancing requirements are relaxed and more businesses across the country begin to reopen, the focus has turned to the recovery.

The glum outlooks from some observers are based on the assumption that elevated levels of unemployment, fear of catching the virus that causes COVID-19, and behavioural changes related to social distancing will combine to constrain demand.

But we humans have a tendency to surprise. The SARS outbreak in 2003 didn’t hurt as much as economists thought it would, nor did the 9/11 terrorist attacks precipitate the economic calamity that many predicted in the immediate aftermath. Each time, entrepreneurs and executives found ways to adapt to new circumstances, and households proved their enduring commitment to spend once the initial shock wore off.

“I do think that we will recover,” said Corey Gross, chief executive and co-founder of Sensibill Inc., a Toronto-based technology outfit that uses artificial intelligence to process receipts. “Do I think it will be as sharp a recovery as it was a decline? No. But I also don’t think it will be a slow, drawn-out recovery. People want to get back to work. People want to reopen.”

“I don’t think it will be a slow, drawn-out recovery. People want to get back to work. People want to reopen.”

– Corey Gross, Sensibill

The initial phase of the recovery from the COVID-19 crisis will look impressive on paper because restaurants, gyms and other businesses that were shut will reopen and workers who were on furlough will come off the unemployment rolls. It’s mechanical.

In March, Durcak closed her three cafés and fired all but five of her staff of 30. Then she got a $40,000 emergency loan from the federal government’s small-business rescue and “doubled down” on Dispatch’s delivery business. Durcak made the “risky” decision to use most of the money she had left in the bank to promote the delivery side. Orders picked up. She applied for the federal wage subsidy, which allowed her to bring back eight of the workers she had let go.

But the decision on whether to rehire the other dozen baristas will depend to some degree on the willingness of Montrealers to line up for fancy takeout coffee, since social-distancing requirements will make it difficult to generate revenue from cafés designed to encourage volume.

“I do have concern for peers in my industry, or restaurant operators, that have one revenue stream.”

– Chrissy Ducak, Dispatch Coffee

“I think we’ll be alright because we have a diversified model,” Durcak said. “I do have concern for peers in my industry, or restaurant operators, that have one revenue stream and one small business. I think if we were just one or two cafés, we would maybe not survive because my forecast is we’re going to be at 50 per cent of our normal sales in the months to come, or until a vaccine is on the market.”

That means the big increases that are starting to show up in the data may be difficult to reproduce.

Jordan Boesch, chief executive of Saskatoon, Sask.-based 7shifts, which sells scheduling software to restaurants, said usage crashed after March 18, and is now on track to return to pre-crisis levels within a couple of months.

“We’re seeing things slowly come back up, but it’s going to be slow,” Boesch said. “When will the broader economy get back to a state where people will feel like it’s normal again? I would guess next year when there’s a vaccine.”

Bank of Canada governor Tiff Macklem says to help the recovery, Canada must work within its own borders to boost GDP.

The pace of the recovery to a large degree will depend on us. The Great Depression was worsened by millions of people who had jobs deciding to behave as if they did not, saving every penny. The Great Recession persisted because policy-makers were hesitant, in part because they were worried about how multibillion-dollar rescues and bailouts would be perceived by voters. If we avoid those mistakes, we should be able to keep the momentum of the reopening going.

Bank of Canada Governor Tiff Macklem told the House finance committee on June 16 that Canada, which has a long history of relying on exports to create wealth, might have to create more of its own growth for a few years.

Irene Lauro, an economist who watches Canada at Schroders plc in London, expects the economy to rebound in the third quarter, but thinks the weakened state of the global economy and the collapse of oil prices will keep Canada’s GDP below pre-crisis levels until at least 2022.

That means those of us with money to spend and invest must resist the urge to retreat from the pandemic.

And it means that governments must resist the urge to backtrack on their rescue programs too quickly. The numbers are huge, and there are limits to how much the government can spend, but we haven’t reached them yet.

There still is room to spend and the government should be prepared to use it until we know more about COVID-19, which will haunt economies until most people are sure the disease is no longer a threat to public health.

“I’m obsessed. Everyday I look at B.C.’s numbers to see if there have been community outbreaks,” said Alison Taylor, co-CEO of Vancouver-based Jane Software Inc., which sells an operational platform aimed at physiotherapists and other health workers. “We’re hopeful and optimistic, but at the same time we have to be prepared to shift if we have to shift, like if we have to go back into another lockdown.”

The pandemic-induced recession hit women more than men, as they fill the majority of service sector jobs — hardest hit in the shutdown. The months ahead will be a contest between destruction and creativity. Destruction has the early advantage.

Just in Quebec, the provincial government already has had to come to the aid of Cirque du Soleil Entertainment Group, and it could feel pressure to do the same for Aldo Group Inc., the closely held footwear designer and retailer that filed for bankruptcy protection last month. Reitmans Canada Ltd., another Quebec-based brick-and-mortar retailer that sought the court’s protection from creditors, appears to be on its own.The recession is hurting women disproportionately because they make up the majority of workers in the service industries that have been most affected by the crisis. It also could exacerbate other societal gaps that had begun to close after several years of decent economic growth. The Indigenous Tourism Association of Canada this month released a study by the Conference Board of Canada that estimates GDP generated by its members will decrease by about 60 per cent this year, dropping to about $555 million, and employment will shrink by more than 14,000 jobs.

But there are other forces at work that will drive investment.

Climate change is one. Earlier this month, Montreal-based GHGSat Inc. sent a satellite called Iris into space, which will monitor methane emissions for the company’s clients, many of which are Canada’s largest oil companies.

“Some of our biggest partners are reeling,” said Stephane Germain, GHGSat’s president. Yet, “they all are respecting the purchase orders they have in place with us,” Germain continued. “They realize the energy transition and monitoring greenhouse gas emissions and climate change is an issue that obviously has to take a backseat to COVID for now, but is still a major issue that needs to be addressed for shareholders and for customers.”

Growth in the digital economy may pull Canada out of recession faster than in previous times.

And the lockdowns appear to have accelerated the shift to the digital economy. Jane Software froze hiring for a few weeks in March, as Taylor and the company’s other leaders readied for disaster. But the lockdowns created so much demand for its software that they can’t hire fast enough. “We’re maxing out our training program on the (software) support side,” said Taylor. “We’re always hiring.”

It’s premature to suggest Jane’s success heralds a speedy recovery for the rest of the economy. But it is a reminder that we tend to exaggerate the negative while in the middle of tough situations. There were predictions that 9/11 would trigger a recession, but the opposite happened. Stephen Poloz, the former Bank of Canada governor, left office predicting that the COVID-19 crisis would trigger a “surge” in entrepreneurial activity.

Durcak attributes Dispatch’s survival to “good fortune.” After you hear the rest of her story, you might call it something else.

E-commerce exploded in March and April, for obvious reasons. Many Canadian companies had to scramble to figure out how to sell their goods and services online, but Dispatch was already there.

“I’m wary but I’m also optimistic.”

– Chrissy Durcak, Dispatch Coffee

Durcak had started a subscription-based delivery business in February 2019. It was partly a passion project, and partly a business decision. She believes the coffee industry’s environmental footprint — large-scale production, long supply chains, and all those takeaway cups — and the planet would be healthier if we drank more coffee at home.

But she also observed that that commerce was moving to the internet and she wanted to catch the wave.

At the start of 2020, delivery represented about five per cent of Dispatch’s revenue. But with the cafés closed, it was suddenly all the company had. Her bet there paid off. The delivery business blew up: online sales increased 300 per cent in two months and now represent 90 per cent of sales.

Dispatch is making as much money as it was before the crisis, albeit with fewer people. The revenue will give Durcak some breathing room to rethink the café business. Currently, the rent is too steep for a world in which social distancing is the norm, but a constellation of smaller outlets could work.


“I’m wary, but I’m also optimistic,” Durcak said. “Fundamentally, humans are scrappy and resourceful when faced with crises.”

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