ECONOMIC HAVOC EXPECTED
COVID-19’S strain on supply chain to have ripple effect: U of S prof
SASKATOON Don’t ask Murad Al-katib how he’s feeling right now.
“When people ask me how I am, I say, ‘I’m the CEO of a multinational in a global pandemic.’ So that should answer how I am right now,” said the CEO of Regina-based AGT foods. “This is a situation that I have never seen in my business career, and I hope to never see again.”
Al-katib is actually one of the lucky ones. There’s still worldwide demand for his products. People need to eat, even during a pandemic, and the dried peas, lentils and pastas AGT produces are especially coveted as non-perishables fly off the shelves.
But that doesn’t relieve Al-katib of headaches. He has to keep those shelves stocked, and COVID-19 is causing supply chains to seize up all over the planet.
“A wire transfer that used to take two hours now takes two days,” he said. “Steamship lines, railways, port operations, hygiene programs on imported cargo, all of these things are going to lead to a slowdown.”
No one knows how long COVID-19 will grip the world economy, or how hard it will squeeze. But there’s no doubt it will put a stranglehold on Saskatchewan, causing widespread job losses, plummeting income and economic devastation.
Jeremy Harrison, Saskatchewan’s minister of trade and export development, said the province is facing its most significant economic challenge since the Great Depression.
“We’re under no illusions that this is having a profound impact on the provincial economy,” he said.
“We are going to do whatever we can,” Harrison added. “But the reality is that, in a very trade-exposed and trade-dependent economy … we are seeing the global economy, basically, in an unprecedented, co-ordinated shutdown.”
“Whatever we can” won’t be enough, according to Joel Bruneau, head of the economics department at the University of Saskatchewan. The province, even the feds, simply don’t have the financial resources to replace the income now evaporating from the economy.
“A recession is coming and the province cannot spend its way out of this,” said Bruneau. “It’s too big.”
There are little data to show how bad the reality already is. The latest jobs numbers are from February, and income figures are even more outdated. Bruneau said it could take until May or June to get a clear picture. But he’s expecting the worst.
“It’s going to be a bloodbath,” he said.
The main problem is demand. Even those who still have jobs are “hunkering down,” in Bruneau’s words. Many are earning far less through reduced hours, pay cuts or Employment Insurance.
“Everybody’s going to be cutting back on consumption,” he said.
Bruneau expects to see a sudden drop in employment, followed by waves of layoffs as lower spending ripples throughout the economy. Governments and people will build up massive debt, and then cut back to pay it off later. He’s hesitant to speculate on exactly how much the provincial economy will shrink.
“If you told me that there’s a five-per-cent drop from the first of March to, say, mid-april, and that the entire recession might be in the six- and seven-per-cent range, I guess I wouldn’t be that surprised,” Bruneau said.
One of the province’s largest sectors, energy, is facing a double whammy. COVID-19 is cutting into demand for oil as people drive and fly less. At the same time, Russia and Saudi Arabia are driving up supply as they open up the pumps to win market share.
That’s pushed oil prices down to unheard-of levels. The Canadian benchmark for heavy oil is now at US$5. A barrel of Western Canadian Select now costs less than a dozen doughnuts.
Kris Carley, vice-president of C&N Oilfield Maintenance Ltd., called it “unprecedented.” He’s never seen so many wells shutting down.
“We got one company up the road here that we went and shut 14 wells in for them in one day,” he said.
That means 14 fewer wells for his crews to maintain. He’s already laid off a third of his staff. Soon it could be half. Many of his remaining workers have taken cuts to hours or wages as work dries up.
“The maintenance work, the crew work, the belt changes, the pipe-fitting, all that work has basically come to a halt,” said Carley.
“Nothing’s being done,” he added. “No money’s being spent. There’s no new projects that are going to take place. I’m hearing at least six months before any drilling programs fire up again.
“And that’s a best-case scenario.” According to Bruneau, the biggest mystery is how long it will take the province to bounce back. He said there are two types of recessions. Some are like an inflatable bozo doll: “The harder you hit it, the harder it bounces back.”
But others, like the 2008 financial crisis, have effects that linger for years.
“How much of this is a financial crisis, and how much of this is just a regular old sharp recession with a sharp rebound?” he asked himself.
“I don’t know.”
A recession is coming and the province cannot spend its way out of this.
It’s too big.