‘Stars are aligning’ for small business as recovery takes hold: Scotiabank report

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Small and mid-sized businesses bore the brunt of the COVID-19 pandemic, but accelerated adoption of technology, rising immigration trends and continued targeted fiscal support from government suggest they are poised for a healthy recovery, according to new economic research from Bank of Nova Scotia.

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“Stars are aligning for better days beyond COVID-19,” said the authors of the report led by Nikita Perevalov, Scotia’s director of economics.

The report says small and medium-sized businesses, which contribute significantly to Canada’s exports and other economic activity, are poised to benefit from rebounding economic growth across North America, and “should enjoy plenty of opportunities not only to recover to pre-pandemic levels, but to thrive and continue to succeed in the competitive global environment.”

Job losses were high among small businesses, as was reliance on government wage supports, but Scotia says small and mid-sized businesses have been responsible for most of employment gains since April 2020, with 75 per cent of net job gains occurring at firms with fewer than 100 employees.

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While sporadic outbreaks of COVID-19 are expected to present ongoing challenges, businesses will be helped by ongoing targeted government support and federal pledges to fund innovation and provide incentives to businesses investments, the report’s authors said.

“There is no doubt that the Canadian economy, once it emerges on the other side of the pandemic, will look quite different,” the report said, adding that the “cataclysmic event” has already led to deep changes including sharply accelerating digitization.

“The pandemic accelerated digital transformation for small- and medium-sized businesses, and many pivoted their businesses in incredibly innovative ways,” said Jason Charlebois, senior vice-president, small business at Scotiabank.

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Around 90 per cent of small and medium-sized Canadian businesses moved a portion of their operations online in the past year to manage pandemic restrictions, and more than 80 per cent that adopted contactless services such as secure payments and e-commerce plan to continue with those permanently, according to data release this week by Salesforce.

The Scotia report said the share of firms that obtain more than 50 per cent of revenue from online sales rose for businesses of all sizes between 2019 and 2020, and there was a significant shift for firms with between five and 99 employees, a segment that has historically “under-utilized” technology compared to the Canadian average.

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When the pandemic first bore down in the spring of 2020, triggering lockdowns to control the spread of the virus, small and mid-sized businesses were most affected by weak demand. But as they adjusted their operations and a national COVID-19 vaccination campaign and other public health measures led to reopening, the biggest concern is now labour shortages.

Immigration targets through this year and next, if met, will help alleviate these shortages, particularly when it comes to skilled labour, according to the Scotia report.

Nevertheless, recovery is expected to vary among sectors, with some already well along the road to recovery. Construction and real estate, for example, are already back to pre-pandemic levels of GDP, while industries including arts and entertainment, accommodation and food services struggle with ongoing restrictions around travelling and dining out.

“Moving forward, we are likely to see demand shift again as vaccinations in Canada continue to increase and previously closed businesses to re-open their doors,” the authors of the report said.

“This rotation in demand should allow some firms to catch their breath and work on alleviating their supply chains strains.”

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