As businesses and supply chains continue to cease operations to help stop the spread of COVID-19, the virus has resulted in a recession unlike any other in memory. As provinces and territories begin the conversation on re-opening the economy, in his first Policy Speaking blog, PPF fellow Glen Hodgson, lays out the key questions that will need to be addressed.

The health and wellbeing of Canadians has been at the forefront of the response to the COVID-19 pandemic and rightfully so; but the virus has also resulted in a recession unlike any other in memory. The recession is being driven by the forced supply-side shutdown of many business sectors and firms, in a national and international effort to contain the pandemic. As provinces begin the conversation on re-opening the economy, key questions will need to be addressed.

The first phase of policy response has been about widespread social distancing, in order to preserve the ability of the healthcare system to cope with the ongoing COVID-19 case load. The required shutdown has focused on sectors like hospitality that rely on direct contact with and among consumers and clients. There has been complementary broad policy intervention like aggressive monetary accommodation and providing extensive income support to businesses and employees affected by the shutdown.

This necessary strategy comes with a high economic and financial cost in Canada and other countries. The economic costs of the shutdown are massive and will continue to grow the longer the broad shutdown is in place. The IMF is now forecasting a global recession in 2020 with a projected contraction of 3% of global GDP. Few countries and regions will be spared. Canadian GDP is projected to fall by 6% or more in 2020, with soaring unemployment, despite massive supportive interventions by governments. Other social and health costs related to the shutdown are also apparent. Moreover, a prolonged deep recession would hamper provincial governments’ capacity to continue to fund and operate the health care system.

The recovery is also going to be very different from past experiences. The hoped-for “V” shaped recovery, with a sharp drop in output and an equally sharp return to growth, is not going to happen. A more likely scenario is a recovery that will be step-by-step, extended, could be fragmented at times, and with an ever-present risk of an additional pandemic wave until a vaccine is widely available.

How can the economy be reopened while containing the threat of a second wave? The next phase should be about risk management, gradually re-opening the economy while continuing to take steps to control the pandemic. It will require a shift in mindset, strategy, and tactics, from broad intervention to more targeted action. The second phase will require a combination of: phased re-opening; focused public health practices; testing wherever possible; better data on the virus spread; and constant assessment of risks, and health and economic impacts.

Here are some key questions that will need to be addressed by governments, businesses and the general public:

  1. When is the right time to re-open? Achieving an extended period with no new cases (like two weeks) has the best chance of preventing recurrence but delaying a re-start would also come with significant economic and fiscal costs that continue to rise. Alternatively, each provincial economy could consider a staged re-opening once the case curve and reinfection trend is clearly in decline, guided by the ability of the health care system to manage the projected case load.
  2. Should there be pre-conditions? Clarity on the specific conditions for reopening the economy would help to build public confidence and support. Capacity to implement widespread testing would be required in order to generate better data on the virus spread, allowing close monitoring of developments. In addition, developing more common principles that apply across the country would provide consistent guidance on the game plan for business and the public. Each province and territory could then implement a recovery plan that reflects local conditions.
  3. Where should we start? It is generally agreed that a staged approach is warranted, by region, sector and business. A number of attributes could be considered for defining each stage, such as: the ability for a business to start up quickly, notably by having retaining access to its workforce; continued personal distancing applied within the workplace and in public; shifting business to a virtual platform; meeting market gaps for consumers and other businesses; and having reliable supply chains and access to key inputs.
  4. What else is required? In order to permit employees to return to work, education and childcare systems should also be preparing for reopening, by defining the right conditions and timing. Phased reopening of schools and childcare, and realistic measures to limit group size and inter-personal contact, would be important steps to take.

Policy discussion is now underway on the timing and conditions for restarting the economy in stages, while continuing to contain the coronavirus. Re-opening the economy would restore income streams and help reduce the pressure on governments to sustain many individuals and businesses.  Addressing the four questions outlined here would help to guide a measured response by policy makers and businesses.

By: Glen Hodgson, Fellow, PPF

Back to top