This expanded edition of Economic Directions takes a deeper dive into the economic impacts of COVID-19: what we know so far, what we might see in the coming months, and what it all means for CUPE members.

Economic growth – The global effort to contain the spread of COVID-19 had a deep impact on economic activity in the spring of 2020. In many higher income countries, containment efforts lowered case numbers significantly and governments took steps to reopen their economies in June and July. There was an initial bounce in economic activity that tapered off by early August. Most economists predict a full recovery will take much longer. Retail activity is nearly at pre-pandemic levels, but food services, recreation, and culture have only recovered a fraction of their losses. The Bank of Canada estimates that the global economy will shrink by 5.2 per cent in 2020 and rebound in 2021 and 2022. The economic recovery in the United States, Canada’s biggest trading partner, is far more uncertain, as the number of COVID-19 cases continues to rise.

Jobs – The effective unemployment rate for April was close to 30 per cent, with 5.5 million workers in Canada affected by the shutdown. By August, the labour market situation improved significantly, but there were still 1.8 million workers that had lost hours or employment due to COVID-19. Employment levels for higher-waged workers have nearly recovered (at 99 per cent of February employment), but remain significantly below pre-pandemic levels for low-wage service sector workers (only 86 per cent of those employed in February are working now). The Canada Emergency Response Benefit (CERB) is slated to end soon and recipients will be transitioned to Employment Insurance (EI) or a new parallel benefit if they don’t qualify for EI. Unless there are significant changes to EI, many workers will receive much lower benefits or lose access to benefits completely.

This July, Statistics Canada started tracking race-based information in the monthly labour force survey, which will provide us with more insight into the ways the pandemic and economic fallout have affected racialized people. They found that unemployment was highest among South Asian (17.8 per cent), Arab (17.3 per cent), and Black (16.8 per cent) people, compared to 9.3 per cent for white people.

Wages – The deep and dramatic impacts of this recession will affect bargaining, with public sector employers likely being especially reluctant to move on wages. Temporary top-ups for essential workers have ended, even though their employers include some of the largest businesses, who continued operations during the pandemic and became even more profitable. The need to recruit and retain more workers in child care, education and health care may result in long overdue wage boosts for these sectors.

Inflation – Overall inflation will likely remain low in the near term, but the price of some items may be affected by increased demand and disruptions in local or global supply chains. For example, beef and pork became more expensive in June, as food processing plants temporarily closed in response to COVID-19 outbreaks. Prices at the pump have rebounded and are no longer pulling overall prices downward. The impact of inflation is uneven, as rental costs increased slightly while mortgage costs fell.

Interest rates – The Bank of Canada expects to maintain its key lending rate at 0.25 per cent for several quarters and is continuing to provide support to mortgage lenders and governments. Banks have responded to public pressure and stabilized markets and have lowered the cost of lending for many of their products. Government borrowing has never been so affordable, with 30-year federal government bonds selling at 2.0 per cent interest.