CANADIAN BUSINESSES FACE “L-SHAPED RECOVERY.” Canada’s small businesses will not see sales return to pre-pandemic levels until February 2022, and the hotel industry will not return to normal until 2029, if the nation’s economic recovery continues at its current “glacial” pace, warned the Canadian Federation of Independent Business (CFIB) on 22 September.
A new survey showed only 30 percent of small businesses achieving September sales that rivaled last year’s.
The CFIB’s latest recovery update showed that:
- 70 per cent of small businesses are now fully open;
- 42 per cent are fully staffed;
- only 30 percent are making normal sales.
At current economic growth rates, the transport industry and medical services will return to normal by mid-2021; business services such as law and accounting will need until June 2023; and hotels and restaurants until the beginning of 2029 to see 2019 sales again.
To speed recovery, CFIB is promoting a “Small Business Every Day” movement, nurturing 61 shop-local movements around the country, such as Points for Canada, which gives plastic-card users double reward points at locally-owned restaurants and retailers.
The Canada United program offers relief grants of up to $5,000 to small business owners; Snapd’s Business Recovery Grant Program gives grants of up to $25,000 to help small businesses market themselves.
Without speedy, significant government aid, Canada’s small businesses face an “L-shaped recovery,” CFIB said.
BRITAIN’S RETAIL SALES PERK UP. Retail sales in the U.K. rose 0.8 percent in August from July, edging past analysts’ expectations to log a 2.8-percent gain year-on-year.
Recovering from a stricter lockdown than that of many other countries, Britain’s economic outlook has been viewed pessimistically by economists.
BRITAIN QUITS EFFORT TO BRING PEOPLE BACK TO THE OFFICE. After imposing new social strictures in response to a new surge in COVID cases, Britain has suspended its campaign to bring office workers back to urban centers and save the businesses that depend on them.
JPMorgan Chase had set a 21 September deadline for half of its 12,000 U.K. workers to return to their offices after CEO Jamie Dimon said “the work-from-home lifestyle seems to have impacted… overall productivity and ‘creative combustion.’”
For now, JPMorgan’s workers will remain at home.
Intermingling in the office is “important for teams, good for communities, and good for the economy,” noted Kevin Ellis, U.K. chairman of the accounting giant PwC.
Now thousands of PwC employees who had already resettled in their offices were told to go back home unless an office visit is essential.
Goldman Sachs, Lloyd’s, and Barclays also scrapped instructions for employees to come back downtown.
HSBC halted plans to begin to bring its 40,000 U.K. workers back to offices in seven major British cities.
Advent, a private equity firm, was paying employees’ taxi fare to bring them to work safely and offered free food from its canteen. Now workers are only allowed in the office if they have tested negative for the COVID virus, have management’s permission, and walk, cycle, or drive their personal cars to get there.
CHINA’S CURRENCY GAINS MORE ON THE DOLLAR. The renminbi, China’s internal currency, gained another 0.1 percent against the dollar on 25 September, rising to 0.7551, its best weekly showing against the greenback since November 2019.
The unfolding recovery of China’s export economy, and the willingness of its businesses and citizens to take on debt, has brought a steady flow of dollars into the country.
“With China on course for a more pronounced recovery than elsewhere, its external position the strongest in a decade, and onshore yields unusually attractive by global standards, there is room for further gains,” said Julian Evans-Pritchard, China economist at Capital Economics.
Metal Up, Building Booming
China, which consumes half of the world’s output of industrial metals, has redoubled its massive infrastructure project since March to build roads, railroads, utilities, bridges, and broadband infrastructure across its three million square miles.
As a result, global prices of metals have soared in the last five months: iron ore is up 40 percent, copper 35 percent, and nickel and zinc 25 percent.
In August, the government-owned rail system announced plans to double the size of its high-speed rail network over the next 15 years.
Overall, China’s state-owned enterprises have raised their investment 14 percent this year over last, compared to just 3 percent among private businesses.
In Guangdong province alone, officials are targeting the equivalent of $100 billion to build medical facilities, transportation infrastructure, and an extensive 5G network.
The country’s industrial production grew 5.6 percent in August, year-on-year, leading analysts to declare a V-shaped recovery for the sector.
The national spending spree has doubled Chinese debt-to-GDP ratio from 10 percent in December to 20 percent now.
Retail Pull Back
China’s retail sales grew just 0.5 percent in August. Excluding vehicle sales, which rose 11.8 percent for the month, the nation’s retail economy showed a contraction of 0.6 percent.
The month’s best-sellers were food staples and household goods, adding evidence consumers are spending cautiously now that they have satisfied a post-lockdown surge in demand.
Online sales of consumer goods and services also slowed, gaining 13.3 percent in August, compared to July’s 18.8 percent growth and 19 percent in June, according to CNBC. After a June promotion, online shopping platforms JD and Taobao reported declines in their numbers of users.
Fenqile, another online shopping site, reported sales of discounted items and wellness products are rising much faster than those of nonessential and celebrity-endorsed products.
“With unemployment stress and growth headwinds persisting into the fourth quarter, any recovery in overall consumption will be mild,” said analyst Imogen Page-Jarrett at The Economist Intelligence Unit.
TREND FORECAST: As we had forecast, the 20th century belonged to the U.S.; the 21st will be China’s, in part because the business of the U.S. is war and the business of China is business.
It is interesting to note that for years, President Trump blamed rising Chinese imports because their currency, the yuan, was being artificially devalued. Thus, the cheaper their currency the less if cost to buy their products with strong currencies.
However, China’s exports are still rising as their currency grows stronger and its economy is forecast to be the only one of major nations whose GDP will grow this year.
In part, we attribute the nation’s economic strength as a result of the government stimulus to build its infrastructure, money being pumped into small business sectors, thus creating jobs, and its move toward a self-sustaining economy.
JAPAN: BYE, BYE BUSINESSES. More than 500 small and medium-size Japanese businesses have permanently closed as a result of the economic shutdown, according to data from credit research firms.
The city of Tokyo has recorded 120 business bankruptcies since the shutdown began, largely due to the city’s astronomical rents.
An economic rescue plan launched by Shinzo Abe, the previous prime minister, has had mixed success, although saving businesses was the plan’s chief mission. The parliament agreed to a second round of stimulus in June, but the money did not start flowing until early August.
The hardest-hit category of shuttered enterprises is restaurants, with at least 70 shut down, followed by at least 54 clothing stores.
“I’ve lost my motivation to continue the business,” said the owner of a now-defunct French restaurant that had been serving meals for 45 years.
The new government of prime minister Yoshihide Suga is mulling a new stimulus measure.
TRENDPOST: Japan’s economy was heading into recession last year when the world’s third largest economy’s GDP fell 6.3 percent in the last quarter of 2019.
Following the global lockdowns, Japan’s GDP suffered its worst postwar contraction, falling 28.1 percent in the April-June second quarter.
And, it should be noted, Japan did not lockdown its economy as hard as did most nations.
BUSINESSES FLEE ARGENTINA. Chilean retail chain Falabella has joined German chemical company BASF, pharmaceutical maker Pierre Fabre, glass company St.-Gobain, and Axalta, the U.S. auto parts maker, among others, in slashing investments in Argentina or leaving the country altogether.
LatAm, the region’s largest airline, halted service in Argentina in July.
The corporations have protested increasingly tight government controls over capital in its attempt to hold onto shrinking foreign exchange reserves.
“Companies are grappling with an increasingly interventionist policy” that “may worsen as economic conditions worsen,” said Kezia McKeague, an advisor at McClarty Associates.
Argentina remains under one of the world’s strictest lockdowns.
TREND FORECAST: Before imposing one of the world’s strictest lockdowns, Argentina was already facing a third year of recession in 2020. Now, according to the Organization of Economic Cooperation and development, its GDP is expected to contract 10 percent this year.
As the economy worsens, as they are throughout Latin America, social unrest will escalate throughout the region. Not only will more businesses leave, so too will floods of citizens seeking to escape poverty, rising crime and government corruption.