Slow vaccine rollout in Canada expected to be a drag on economic recovery

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The pace of Canada’s COVID-19 vaccine rollout, which has lagged that of many other developed nations, is expected to be drag on the country’s economic recovery in the short-term and may have long-term implications as well, according to economists and business groups monitoring the situation.

Canada had administered roughly five vaccine doses per 100 people as of Monday, compared to 31 in the United Kingdom, 23 in the United States, and seven in Germany, according to Bloomberg News figures.

Trevin Stratton, chief economist at the Canadian Chamber of Commerce, said the lagging rollout will have an impact on business survival and the economic recovery, particularly in the hardest-hit industries.

“We will be looking at a greater number of business closures … the longer the vaccine rollout takes,” he said. “That means fewer businesses to propel recovery and fewer jobs and salaries to contribute to demand and consumption.”

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In addition, Canada could fall behind on capital investments and project finance as investors choose countries where the population is closer to herd immunity against the virus, said Stratton, who is also senior vice president of policy at the chamber.

“If our advanced economy peers roll out vaccines faster than Canada, then there is a risk that investors will put their money where they will have a faster or more robust return on investment,” he said, adding that Canada may yet take steps to close the vaccination gap.

“Getting this right will be the single greatest factor for economic recovery over the short-term,” he said.

Miguel Ouellette, an economist and director of operations at the Montreal Economic Institute, said the speed of the rollout has implications stretching from supply chains to the shape of recovery in sectors such as aviation.

There is evidence, he said, that sanitation measures imposed to combat the spread of COVID-19 lower production in manufacturing, something that could prompt supply-chain adjustments in favour of counties that no longer need these additional safety measures.

If an American automaker has a Canadian supplier, for example, and finds a supplier with speedier production in a country where a higher percentage of the population is vaccinated, “they might turn to the other supplier,” he said. “It is true for the short term, and it poses a risk for the long term as well.”

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Canada’s aviation and tourism sectors are also likely to feel lasting pain as life begins to return more or less to normal in countries with high vaccination rates, Ouellette said, noting that vaccination levels and loosening restrictions are likely to factor into choices about travel destination.

“This will affect those industries, and it might leave permanent … problems,” he said. “Air Canada has already lost billions of dollars so far and, knowing their market share, I’m concerned about the long-term effects of Canada being late on vaccination.”

Goldy Hyder, president and chief executive of The Business Council of Canada, said some conditions in Canada could dull the impact of the slower vaccine rollout, such as a lower infection rate compared to other developed countries where vaccinations are happening at a faster clip. He added that the federal government has targeted the fall for the inoculation of all adult Canadians who want to be vaccinated, which would put the country only two or three months behind the United States.

“A difference of a couple of months is unlikely to have a significant impact on our economy,” Hyder said. “But it does underscore the urgency of an ‘all hands on deck’ approach to ramping up Canada’s vaccination campaign as quickly as possible.”

To that end, some members of his organization have offered their expertise to assist with vaccine rollout and with widespread rapid screening to reduce the risk of asymptomatic spread of COVID-19.

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“We absolutely cannot afford to wait until the end of year to get the virus under control,” Hyder said, adding that other countries could easily pull ahead of Canada simply by mapping out ambitious growth strategies that promote investment and bring back jobs.

“Failing to do that would be the real risk to our economic recovery,” he said.

Avery Shenfeld, chief economist at CIBC Capital Markets, said he thinks the vaccination lag will turn out to be “largely a short-term story” for Canada’s economy.

“By the fall, there isn’t expected to be a gap in vaccine coverage, and even by the end of the spring, many of the most vulnerable Canadians should have received at least one dose, allowing the economy to open up much more over the summer without testing hospital ICU capacity limits,” he said.

However, he noted that Canada’s economy has been lagging the U.S. throughout the year-long pandemic.

The gap is due, at least in part, “to America’s apparent willingness to tolerate more illness and a higher per capita death rate to keep the economy running,” Shenfeld said.

“That still seems to have been the case the first quarter of 2021, so it’s not just about vaccines, but the choices individuals and their government make in terms of what they will give up to save lives.”

In a recent report, economists at Royal Bank of Canada noted that momentum at the end of last year had stalled as the country’s two largest provinces, Ontario and Quebec, renewed lockdown restrictions. The economists said activity is expected to pick up in the second quarter, though they lowered growth forecasts slightly due “to vaccine shipment delays that have Canada lagging behind other countries in jabs administered.”