As the world takes drastic actions to contain the spread of COVID-19 to save lives, initial indicators are showing these necessary lockdowns are hitting the global economy hard. As an Export Development Canada (EDC) Research Panel study shows, few companies have been left unaffected.
There’s still so much we don’t know about the economic effects of this pandemic, and the reporting of official GDP statistics is lagging behind fast-moving developments. Surveys are one of the quickest ways to gauge market impacts, and our survey offers timely insights on how the pandemic is affecting Canadian businesses in domestic and international markets.
Impacts: The survey results confirm the vast extent to which activity is being disrupted throughout the economy. Few companies are unaffected. Roughly three-quarters of respondents reported a negative impact on their sales.
And the adverse impacts are quite severe. All told, our survey responses imply a drop in sales of roughly 15% from January to mid-April, with a slightly larger decline for exports than domestic sales. What’s more, these impacts are highly concentrated among the more than one-in-three respondents, whose sales fell more than 50% since January.
Given such significant impacts, the big question is how long will this last? Here, survey respondents typically expect COVID-19 sales impacts to persist into the autumn season and more than 40% expect impacts continuing into 2021.
Many businesses face acute financing needs, which will become even more pressing the longer the economy remains stalled. Nearly one-in-five respondents report additional financing needs by mid-May, while 58% report additional financing needs by July. These numbers underscore the importance of the many government programs that are being rapidly deployed to meet critical business needs.
Perhaps not surprisingly, smaller businesses tend to have the largest relative sales hits, the smallest financial buffers, and therefore the most urgent financing needs.
When asked for their “top concern,” more than one-in-five respondents cited COVID-19 as an existential threat, with genuine worries their businesses may not be operating in six months.
Responses: Companies are responding in various ways to cope with the virus. Actions taken include reducing production—where 29% have stopped production entirely—to reducing employee hours and salaries, to layoffs—with three times more doing so temporarily than permanently.
As we saw during tariffs and trade wars, business resilience and resourcefulness is on full display during these challenging times. We’ve all read news stories of companies pivoting to in-demand products. For example, auto parts manufacturers producing personal protective equipment; clothing suppliers producing designer masks; and distilleries making hand sanitizer. These business shifts come through in our survey. Sixteen percent of respondents say they’ve already pivoted production, while roughly the same amount is considering a pivot.
COVID-19 is also accelerating slower-moving, longer-run trends. With social distancing and lockdowns, many transactions must shift online, and some companies are better positioned to capitalize than others. For example, some breweries have ramped up their output because consumers prefer local deliveries offered through convenient online transactions, rather than risking their health and wasting time in long lines at stores. In our survey, most businesses say they can accomplish at least some of their sales electronically, with one-quarter able to meet all orders online. Unfortunately, about one-in-five respondents say they can’t accomplish any sales online, and these companies will be hit hardest.
International trade is being hampered by cancelled contracts, shipping delays causing delivery date uncertainty, supplier shutdowns, travel restrictions and difficulties connecting with customers and suppliers in other countries. And so COVID-19 also appears to be remaking supply chains in real time. Some respondents have already changed suppliers (6% domestically; 9% internationally), while roughly twice as many are considering supply chain adjustments.
