Supply could be a bottleneck as the tough part of the economic recovery begins

The main barriers reported by companies relate to supply, the reverse of 2020, when executives were primarily troubled by lack of demand

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The economy would still recover as soon as COVID-19 restrictions were relaxed. But now that the easy phase of recovery is over, we have entered a phase where the path to good times becomes less obvious. The future looks bright, but are we sure we know how to get there?

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Canadian businesses recorded disproportionate annualized growth rates of 5.5% and 9.3% in the first quarter of 2021 and the last quarter of 2020, respectively. Yet many of them were waiting for the next shoe to drop at the end of the summer, according to a survey of 16,900 employers released on September 23 by the Canadian Chamber of Commerce.

Job creators across the country were confident about the short term in July and August, when Statistics Canada conducted the poll on behalf of the chamber: 85% said they expected demand to stay the same or increases over the next three months, up from 62% at the start of the year. They also liked the look of the horizon: 76% of those polled said they were either “somewhat optimistic” or “very optimistic” for the next 12 months.

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It stings. Economic growth was solid, if not spectacular, before the pandemic triggered an epic recession in March 2020. The unemployment rate was about as low as it has ever been. The forces responsible for these numbers – immigration and the shift to a digital economy – remain in place. The crisis has even accelerated the adoption of digital technology, while immigration will return to previous levels now that travel restrictions are relaxed.

“We are seeing steady growth in container volume,” Robin Silvester, managing director of the Vancouver Fraser Port Authority, which oversees Canada’s largest port, told Bianca Bharti of the Financial Post on September 23. “Over the past two years, there has been growth above the rate we expected. It really comes down to a growing population in Canada.

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But what about six months from now? Or new? The chamber investigation did not specifically ask a question, but it did spark a sense of dread about anything that could go wrong between now and a post-pandemic world where the shift to green energy and to a digital economy promises to create a lifelong opportunity to generate profits.

Almost 40 percent of respondents said they didn’t know how long they would hold out before considering shutting down, and 33 percent said they didn’t know how long they could keep going before considering shutting down. layoffs, up from 18 percent in the second quarter.

It is easy to understand where the fear comes from. It was becoming clear in August that the Delta variant of COVID-19 was going to wreak havoc, regardless of a country’s vaccination rate.

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Such suspicion was justified: The average of new cases per million population increased in Saskatchewan and Alberta over the past seven days compared to the average of the previous 28 days, according to data compiled by the economics team of the National Bank. The number of cases is also increasing in Quebec, New Brunswick, Manitoba, Prince Edward Island, Nova Scotia and Newfoundland and Labrador. This will weigh on business confidence. Understanding how to handle the Christmas shopping season has become more difficult in recent weeks.

But perhaps the biggest problem for businesses at this point is filling the orders that are piling up. The supply shortages that have characterized the recovery of COVID-19 are proving to be more persistent than expected. The most likely scenario remains that shortages will subside as producers increase production, supply chain bottlenecks begin to ease, and workers return to the workforce. But it has become difficult to predict when conditions might return to normal.

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The chamber survey shows that the main barriers reported by companies are supply-side, the reverse of 2020, when executives were primarily troubled by a lack of demand. Thirty-five percent of respondents said a combination of rising input costs, hiring of skilled workers and overall labor shortages would cause them the most difficulty over the next three months.

“Businesses tell us we’ve moved into a phase where supply is going to be the biggest concern, rather than demand,” Stephen Tapp, chief chamber economist, said in an interview. “Supply is now the key issue for the Canadian economy.

This adds to the danger. Supply has long since ceased to be seen as a threat to growth. The smooth flow of ever cheaper goods and services is something most policymakers have come to take for granted, a stable state created after decades of globalization centered on China’s rise as a supplier. of the world.

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New realities increase the risk of unintended consequences. NFI Group Inc., the Winnipeg-based bus maker, unexpectedly slashed its revenue outlook earlier this month after realizing it wouldn’t be able to source enough parts. The company’s stock price was still down about eight percent per week after the disclosure.

Mistakes will be made in the months to come, but so will fortunes. Growth will depend on people who are willing to take risks and hopefully more than those who end up frozen in uncertainty. Odd Burger Corp., a Toronto-based vegan fast food chain, plans to weather any headwinds its industry faces. James McInnes, Founder and CEO, invests in cutting edge technology to reduce costs.

“The way you beat inflation is to become more efficient,” he said in an interview earlier this month. “We are trying to disrupt.

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In-depth reporting on The Logic’s innovation economy, presented in partnership with the Financial Post.

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