According to data from the Government of Canada, Canada’s real GDP fell 7.2% in March and 11.0% in April 2020 due to COVID-19, two of Canada’s largest consecutive monthly declines in real GDP on record. Unsurprisingly, the number of goods exporters fell dramatically as well.
“The number of Canadian enterprises exporting goods abroad slowed in 2020 compared with 2019. On a year-over-year basis, declines were observed in January and February, and intensified in March. There were 19,706 enterprises exporting goods outside of Canada in March, a decrease of 10.7% compared with March 2019.”
And that,
“Compared with March 2019, all sectors posted declines in the number of exporters in March 2020. Manufacturing (-769), wholesale trade (-755), combined with retail trade (-251), and professional, scientific, and technical services (-172) were responsible for over 70% of the overall decrease.”
The fact that services exporters appear to have been the least affected by COVID-19 suggests that Canada needs to grow its service economy — now more than ever before.
Canada Needs More Service-based SMEs
While the export of goods plays a vital role in every country’s economy, it’s especially important for resource-rich nations like Canada. Many of Canada’s most valuable publicly traded companies are based on exporting natural resource products, be it oil & gas or precious metals. As a result, Canada exports far more goods than it does services; whereas the export of goods contributed approximately $585 billion to Canada’s economy in 2018, the export of services only contributed roughly $128 billion.
Unfortunately, this could have significant implications for Canada in the post-COVID-19 world. Government-mandated shutdowns due to COVID-19 crushed the goods exporting component of Canada’s economy in March and April, sending real GDP growth hurling down to levels not seen since August 2016. A 2nd economic shutdown in response to COVID-19 could prove even more catastrophic.
Although little can be done in the short-term (the federal government cannot snap its fingers and magically create billions of dollars in service export growth), Canada will need to take a more proactive approach to cultivate service providers if it intends to weather future global pandemics.
According to Statistics Canada,
“Just under 1 in 10 services exports [were] in [Information and Communications Technology (ICT)] services [in 2018], with half enabled by digitalization.”
This fact is particularly troubling when one considers the accelerating shift towards the digital economy. In a Weekly Intelligence Newsletter titled, “Ready for the 4th Industrial Revolution?,” we shared the following quote from Columbia University professor Jeffrey Sachs,
“. . .we are unlikely to go back to what was the normal [economic life], in any event, we will have a new normal, that is based much more on the digital economy, much more on e-commerce, much more on work from home. . .”
Growing Canada’s Real GDP Through Services
Goods exports are a vital part of Canada’s economy. However, COVID-19 has reaffirmed that Canada’s dependence on the export of goods for GDP growth is an existential threat to the nation’s economy. In order to future-proof itself against pandemics like COVID-19, Canada will need to develop a more robust service economy — one that places an emphasis on ICT and digitalization.
