As Canadian provinces continue to lift closure restrictions and promo firms there start to make some headway with traditional product orders, the government is now under pressure to address the coming economic recovery stage after the worst days of the COVID-19 pandemic.

Openings come as the country’s Parliamentary Budget Office (PBO) reports that the federal deficit could reach C$256 billion – the combination of $169 billion in aid and a significant drop in economic output due to COVID-19. The PBO also predicts a drop in the economy of 6.8%, double the record 3.2% decrease in 1982.

In a recent interview with BNN Bloomberg, Parliamentary Budget Officer Yves Giroux said that, while the economy hasn’t fared as badly in the past two months as experts had feared, the mass expenditures on government aid to prop up Canadians’ financial situations and business operations may be canceling out any small gains the economy has made since the end of April.

“The government has spent more than we had anticipated,” he said. “It’s almost as if the better-than-expected economic outcomes has almost entirely been taken up … by additional expenditures by the federal government.” He went on to say that the “massive” deficit is something that Canada has never seen before. “It’ll be necessary for the government to ensure that the measures they put in place are indeed temporary, so that we can return relatively quickly to more reasonable levels of deficit from 1% to 2% within a few years,” he said.

Meanwhile, experts are concerned that repayment on government loans offered through the Canada Emergency Business Account (CEBA), part of the COVID-19 Economic Response Plan, will slow recovery. The government continues to dole out aid in the form of $85 billion in deferred tax payments and $81 billion in loans to small- and medium-sized businesses; most of that will need to be repaid in the near future.

“Many firms with already high debt loads from prior to the spread of COVID-19 may not seek assistance structured as debt if their debt service costs are already too high,” Colin Guldimann, an economist at Royal Bank of Canada, told Reuters last week. “That means those firms may fail rather than bridging the gap with a loan that will ultimately lead them to close.”

While the rate of positive coronavirus cases has been trending down in recent weeks, officials warn that Canadians must remain vigilant by continuing to wear masks and social distance as businesses are allowed to open back up. The good news is that in hard-hit Quebec, numbers are gradually trending down. It’s a similar situation in Ontario, though there have been a few areas where the number of positive cases has increased slightly, among them Toronto, Peel, Windsor and York.

Executives in the promotional products space say the tumult and uncertainty of recent months has challenged their return to normalcy, though they are seeing bright spots. Alex Morin, the Toronto-based vice president of sales for Top 40 supplier HPG (asi/61966), whose Canada location was closed until early June, said sales are returning, but they’re much lower than a year ago. HPG has also had to contend with the new normal of bringing employees back to a physical office during the pandemic.

“In some ways, reopening has been harder than closing the doors,” Morin said. “We prepped the workplace to comply with social distancing regulations and have been dealing with order backlogs and navigating the new landscape of supply and demand. It’s all drastically changed the way we look at and run our business.”

In London, ON, which has mostly reopened, McCabe Promotional Advertising Inc. (asi/264901) has a similar sales situation to HPG. President Jamie McCabe said there have been “flashes of normalcy” since early to mid-May and business continues to improve, albeit slowly. Most sales have been apparel, since hard goods usually go to events, which remain canceled or postponed for the time being. “We’re still selling PPE but fewer disposable items,” McCabe said. “There’s been a shift towards reusable products as they become mainstays.”

Chris Sinclair, vice president of Brand Blvd (asi/145124), in St. Catharines, ON, said the area moved into Phase 2 of the province’s reopening phase last week, which allowed hair salons, malls, wineries and outdoor patios to open back up. It’s a welcome step forward after several challenging months for the distributor, though the team has been able to sell PPE, including sanitizer, touchless keys and masks. As with McCabe, Brand Blvd’s clients are also moving toward higher-quality items that can be used for the long term.

Some industries weathered the shutdowns relatively well, said Sinclair, including healthcare, construction, tech, manufacturing and finance. But Sinclair’s local area, near Niagara Falls, was especially hard hit by a drop in tourism. “The tap literally shut off,” Sinclair said. “Over 90% of the industry here is still laid off and with everything relying on outside visitors, there’s a lot of concern for all of the businesses connected to it.”

Similar to different states in the U.S., some provinces in Canada were hit harder than others. Ontario and Quebec had the most difficult time, said Kate Plummer, vice president of sales and marketing at Clearmount (asi/45440) in Scarborough, ON, which has created some division between Canadians in those provinces and residents further west. “They’re not experiencing the same anxieties and stressors that we are in downtown Toronto,” she said. “Even in Ontario, rural communities haven’t been hit the way the city is and have been pushing for faster reopenings. It’s going to lead to strange times.” In Surrey, BC, Sam Singh, president and CEO of Full Line Specialties (asi/199688), said most sales are uniform programs for staff returning to work, but those orders – along with event-based hard goods – have suffered because of low employment numbers.

“Here in British Columbia, things didn’t shut down 100% like they did in Ontario and Quebec,” he said. “We were lucky that the lockdown wasn’t as aggressive as in other provinces and construction didn’t stop. But COVID isn’t going anywhere soon unfortunately, and there will be a second wave of some sort. It’s already happening in Asia. Hopefully, it’s not as strong as the first wave.”

Meanwhile, Full Line continues to fill PPE orders – especially for large corporations – along with basics like writing instruments, cooler bags and personalized drinkware, though not in pre-COVID volumes yet.

Events might be on hold, but Morin said traditional promo is bouncing back because of a shift in buying behaviors. Now, there’s a need to reward, incent, create awareness and address health needs, he said. “Industries that maintained revenue streams during the shutdown have dominated the purchasing space,” he added, “while companies whose revenue was shut off during the lockdown have been slow to start buying promo again.”

McCabe said he’s wary of the next few months, as economic aid from the government begins to expire and business recovery will be tested. “I don’t think the biggest surprise has happened yet,” he said. “I think we’ll experience a financial pandemic once the government stops propping us up. When the tide rolls out, we’ll see who’s been swimming without a bathing suit.”