Economic growth – The pandemic’s impact on global growth remains uncertain. The initial shock has been deeper than any recession on record, and the shutdown has lasted longer than expected. Some sectors are emerging as the hardest hit, like restaurants, travel and tourism, and entertainment. We don’t how many people will visit these businesses once they reopen, especially before a vaccine is widely available. There’s little experience with recessions where these are the worst-impacted sectors, so it’s hard to predict the ripple effects of their downturn. In Canada, record low oil prices have deepened the recession. Most economists expect the economy to bounce back eventually, we just don’t know how long that will take.
Jobs – The official unemployment rate rose from 5.6 per cent in February to 13 per cent in April, an increase of almost 1.3 million unemployed workers over two months. But that’s not the whole picture. Almost 1.1 million other workers were not counted as officially unemployed because they weren’t looking for another job, even though they had lost work. Another 2.1 million workers were still employed in April, but had no hours of work because of COVID-19. When these workers are counted, the effective unemployment rate for April is closer to 30 per cent. This rivals levels of unemployment during the Great Depression. Despite a pickup in employment in May, the effective unemployment rate remained stable.
The effects of job loss are not being felt evenly. Part-time, temporary, and contract workers were the first to be laid off. Many higher wage workers adjusted to working from home and have seen minimal job and hour losses. In contrast, over half of low-wage workers (earning less than $16 an hour) lost their jobs or had their hours cut. More women than men lost work in March. In April layoffs spread to more full-time work and male-dominated sectors. As governments started lifting restrictions in May, more men returned to work than women. This was especially true for parents of children under six.
Wages – The deep and dramatic impacts of this recession will affect bargaining. Private and public sector employers are unlikely to have much wiggle room on wages. At the same time, temporary top-ups for low-wage essential workers have shone a light on the need for wage increases for many workers and are an opening to fight for improved wages and working conditions.
Inflation – Oil prices have dropped sharply as Russia and Saudi Arabia couldn’t agree to prop up the price, and instead flooded the global market. This will play a big role in driving down inflation. In the food sector, falling demand from restaurants has left some farmers with significant surpluses they can’t sell, which has increased storage and feeding costs. At the same time, costs have gone up along the food supply chain to ensure safety for workers and customers. Overall inflation will likely remain low in the near term, but the price of some items, like hand sanitizer, may be affected by increased demand and disruptions in global supply chains.
Interest rates – In response to the pandemic’s economic impacts, many central banks cut rates dramatically in March. The Bank of Canada (BoC) cut its key lending rate from 1.75 per cent to 0.25 per cent and announced several programs to provide financial support to mortgage lenders and governments. Government borrowing has never been so affordable, with 30-year federal government bonds selling at 2.0 per cent interest. But workers may not see banks or credit unions passing on savings from low interest rates. Instead, most have increased their prime lending rates or kept them stable, citing increased risk. With all the federal government and BoC support to the financial sector, we should expect public pressure for banks to charge fairer prices for loans.