Cover

ROOM AT THE TABLE

Some businesses are hurting, but the picture could quickly brighten,

MARY JANIGAN May 5 2003
Cover

ROOM AT THE TABLE

Some businesses are hurting, but the picture could quickly brighten,

MARY JANIGAN May 5 2003

ROOM AT THE TABLE

Cover

Some businesses are hurting, but the picture could quickly brighten,

MARY JANIGAN

HARDLY ANYONE calls any more. And when they do, they talk about the risks of travelling, not the joys. They ask about masks and anti-bacterial soap. They decide to book at the last minute—if at all. Large corporate clients are cancelling their meetings. Tour operators drop by, morosely recounting how Europeans and Americans are staying home because they don’t want to land at Toronto airport and have to clamber onto what they’d view as a disease-ridden bus. And, beset, Laura Collins wonders how long her job at a posh specialty agency will last if business doesn’t pick up soon. “It is scary, big-time scary,” says Collins, an agent at Massey Travel Services Inc. in Port Hope, Ont., just east of Toronto, for 10 years. Reviewing recent catastrophes afflicting the travel business, ranging from the Sept. 11 terrorist attacks to the Iraq war, she adds: “You wonder if SARS is the final icing on the cake.”

And not just for travel, by a long shot. Even if SARS vanished tomorrow, evaporating as eerily as it crept into our lives, the

economic toll would be harsh—at least for the short term. The World Health Organization’s terse advisory against travel to Toronto virtually guaranteed that the damage will spill into the weeks ahead. Already, Bank of Canada governor David Dodge has guardedly conceded that the impact of SARS has ensured that second-quarter growth will be “somewhat weaker” than expected.

The problem, of course, is that no one knows the severity of the contagion. If Canadian health workers manage to control it, the damage will largely be confined to key sectors in the Toronto area and, to a lesser extent, in Vancouver. That is not tiny: the Toronto region alone accounts for 20 per cent of Canada’s GDP. But if SARS seeps from limited pockets of contagion into the broader region around Toronto or, horrors, if it infests ever-greater numbers of Canadians in other centres, the damage could be mindboggling. The truth is that no one knows— and everyone is braced. “In our business, hopefully, you just need an economic crys-

tal ball,” says Toronto-Dominion Bank chief economist Don Drummond. “Well, you need a medical crystal ball here. And not even the doctors have that. We are on a ledge and we could back away—or go over it.”

In the meantime, it is possible to catch a glimmer of the damage already done. Robert Spector, head Canadian economist at Merrill Lynch Canada Inc., calculates that if SARS remains contained in the Toronto area, second-quarter GDP growth could fall anywhere from 0.5 to 1 per cent. That’s the good news. The bad news is that if SARS does pull national growth down by one per cent, Toronto’s second-quarter growth— since it constitutes one-fifth of the economywill have plummeted by five per cent.

Ted Carmichael, chief Canadian economist withj. P. Morgan Chase & Co., has a slightly more dire view. He has scrutinized SARS reports from across the nation, figured out which sectors are affected and determined what role they play in the economy. His conclusion: SARS is likely to cut secondquarter real GDP growth by up to 1.5 per cent. That was before the WHO’s warning. But what would happen if SARS continued to spread—and the WHO alert remained in effect for some time? Could there be a recession? “I hate to go there,” says Carmichael. “But we have prided ourselves on being the strongest-growing member of the G7 for a number of years. If we do not contain this

quickly, the risk is that Canada will not be— and perhaps by a significant measure.”

In the meantime, SARS already has at least three sectors reeling, especially in and around Toronto:

TRAVEL Vancouver investment executive Milton Wong flew from Vancouver to Toronto, then on to Montreal last week. “The terminals were so empty you could roll a ball down them,” he marvels. It can only get worse. Air Canada filed for bankruptcy protection on April 1—after passenger miles dropped 10 per cent in March, mostly due to SARS. It has already trimmed system capacity—and additional cuts of 16 per cent are expected this month.

HOSPITALITY At Biagio’s Ristorante, a glittering spot in downtown Toronto where hundreds usually gather for meals, fewer than 25 diners sat around the crisp white linen and gleaming wine glasses one day last week. Business has been bad for four weeks—and it’s getting worse. Customers have even called from New York City to cancel. Owner Biagio Vinci is in despair. He hasn’t the heart to fire any of his long-time staff, “because they all have families.” So everyone is working fewer hours—and desperately hoping that SARS is controlled soon, and the world knows it. Vinci did his usual rounds of neighbouring hotels last week, asking for referrals, only to be told that occupancy rates were below 25 per cent. And falling fast. He wants governments to suspend their sales taxes, so restaurants can try to attract patrons with the promise of a discount. “I have been 40 years in the food business,” Vinci says, “and I have never seen such a catastrophe.”

ENTERTAINMENT At the Shaw Festival in the quaintly lovely town of Niagara-on-theLake, a full two-hour drive from Toronto, attendance remained at traditional levels last week. But advance sales for the coming season’s 11 plays have been dropping by each week for the past four weeks. Last year, 350,000 people—two-fifths of them from the U.S.—flocked to more than 800 performances. This year, U.S. tour operators, who as usual bought tickets in bulk for resale, are starting to cancel. “The WHO is saying ‘Toronto,’ ” says the festival’s executive di-

rector, Colleen Blake. “But my fear is that the world is hearing ‘Canada.’ That is a very serious concern.”

It’s bad enough now, but suppose SARS keeps percolating through the Canadian population, even at a relatively leisurely pace. That, in time, could affect our very way of life—and work. Four major Toronto conventions, adding up to more than 50,000 room nights for hoteliers, have already been cancelled. U.S. head offices are telling their Toronto employees to stay away from their parent firms. But the worry is more widespread. Terry Anne Boyles, vice-president of the Association of Canadian Community Colleges, visited her son in Hong Kong in early April. Before she left, her staff, as she puts it mildly, “expressed concern.” Now back in Ottawa, she is working from home in a self-imposed 10-day quarantine, conducting business by conference call. “It was the responsible thing to do,” she says.

Such behavioural changes, in turn, could affect those great unknowns of economics: consumer confidence, and business spending and hiring plans. Last week, citing numerous factors including the uncertain business environment, the Bank of Canada trimmed its 2003 annual growth forecast to 2.5 per cent, down from three per cent. But if SARS spreads and retail sales are dropping-figures for March won’t be available until May 21—the nation could be in a whole new economic ballpark. And annual growth could fall still further. “There are some significant, negative, direct impacts,” says Carmichael, “but they are still localized and still in a few industries.” He adds quietly: “Canadian economists are just starting to move along the learning curve as to the potential impact if SARS is not contained.”

In the end, if SARS is contained, economic recovery depends on how quickly people return to business as usual. Parts of Toronto, epicentre of the outbreak, were eerily quiet last week. But TD economists estimate that, if people conclude that Toronto is safe, growth could actually be slightly higher than expected in the last two quarters of 2003. After all, conventions can be rescheduled and delayed purchases can be made. “This is running high on psychology right now,” says Drummond. “And we are getting into a bit of an unknown realm.” Medicine may cure SARS, but it is going to take the equally potent tonic of confidence to rescue the economy, fifi