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After a provincial order to shut all non-essential businesses in Ontario, a normally bustling Queen Street West is lined with closed stores and empty of shoppers in Toronto on March 25, 2020.Melissa Tait/The Globe and Mail

Canada’s economic momentum is at risk of stalling as COVID-19 cases surge across the country, forcing local and provincial governments to extend or tighten restrictions.

Like most of Europe and the United States, Canada is grappling with a second wave of the novel coronavirus that is growing steeper by the day, and which shows little sign of easing. To curb the spread, Manitoba moved this week to shutter all non-essential stores and Toronto extended its ban on indoor dining.

The economy now finds itself in a vulnerable spot. After a summer of business reopenings and rebounding activity, growth is suddenly no longer a given. Making matters worse, some small-business support programs – for wage subsidies and rent relief – are in varying states of limbo, right when many companies need another dose of financial help.

“Stagnation is our expectation," said Eric Lascelles, chief economist at RBC Global Asset Management, projecting that growth will come in flat in November and December. “As sectors get closed, economic damage mounts."

Heading into the fall, economic growth was strong, albeit slowing from summer’s rapid pace. In a preliminary estimate, Statistics Canada said real gross domestic product rose 0.7 per cent in September. That would leave overall output about 4 per cent lower than before the pandemic.

The early signs for October were encouraging, too. Employment rose by more than 80,000 and consumer spending held firm.

“In both the U.S. and Canada, [last Friday’s] surprising jobs data suggested that a second wave of the virus hadn’t yet dented overall growth in October,” Avery Shenfeld, chief economist at CIBC Capital Markets, said in a client note. “But we can look across the pond to Europe, where even higher caseloads seem very likely to squeeze [fourth-quarter] GDP, for what could be in store here if we can’t contain infection rates.”

Containment has been a struggle of late. Canada is now consistently seeing more than 4,000 new confirmed cases of COVID-19 every day, with the seven-day moving average rising quickly. Despite a variety of restrictions, Ontario set a new daily record on Wednesday. And in Quebec, where much of the province has been under partial lockdown since Oct. 1, cases are trending higher again after a reprieve.

“Suddenly the neat-and-tidy analysis [of how the virus is spreading] has become less neat and tidy,” Mr. Lascelles said.

In Manitoba, the economic situation has taken a turn. Manitoba is now grappling with a virus surge that’s prompted the provincial government to impose the strictest second-wave restrictions in the country, starting Thursday. Those include the closing of in-person retail shopping (except for grocery stores and pharmacies), gyms, movie theatres and salons.

“I understand where the province is coming from, that we need to get a grip on this quickly before it gets too out of control,” said Roberto Sinopoli, president of Verde Salon Group, which has two locations in Winnipeg. Still, he added, it’s “a shock” to go back into lockdown.

The upside is that Canada’s economy is better equipped for the second wave. Provincial restrictions are more targeted than before, allowing most industries to continue operating. Meanwhile, federal income supports continue flowing to the underemployed. That should keep the economy from backsliding in the fourth quarter.

But for the small-business community, there is a great deal of concern. Ottawa announced updates to the wage subsidy and the new Canada Emergency Rent Subsidy in early October. However, they still have not received Parliamentary approval after last-minute changes and procedural delays.

Deputy Prime Minister Chrystia Freeland is expected to face the Senate Thursday to discuss the programs, but lobby groups and opposition politicians fear the growing delays will leave entrepreneurs without added help until sometime in December.

The Canadian Federation of Independent Business has estimated that between 55,000 and 218,000 small businesses – nearly one in five – could shut down, depending on government aid. The lobby group is in the midst of updating those numbers, which could rise along with aid program delays and COVID-19′s second wave.

Another concern is how consumers will respond to rising coronavirus cases. "As the virus numbers grow more adverse, people do behave more cautiously and there’s some economic damage that comes from that as well,” Mr. Lascelles said.

After emerging from the first lockdown, revenue was down sharply at Verde Salon Group, Mr. Sinopoli said. That was because of not only capacity limits, but also wary customers.

“Consumer behaviours have shifted significantly,” he said. When people are panicked by the virus, “the last thing they’re thinking about is getting their hair done.”

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