As economies around the world take their first, tentative steps toward restarting, Canadians are beginning to wonder what life may look like on the other side of this pandemic.
The answer to that open-ended question depends in large part on what sort of recovery we are looking at.
When asked to weigh in on the shape of things to come, one of the best ways economists have come up with to lay out the options is based on letters of the alphabet.
Will the recovery look like a V or more like a U? What about a Nike “swoosh” or something wobbly like a W? Or the worst case scenario — will we take the dreaded L?
Even the chair of the U.S. central bank finds himself talking about these ABCs of late instead of his usual ones, twos and threes.
“In the long run, and even in the medium run, you wouldn’t want to bet against the American economy. This economy will recover. It may take a while… It could stretch through the end of next year,” says Fed Chairman Jerome Powell. <a href=”https://t.co/q3xeeDSdro”>https://t.co/q3xeeDSdro</a> <a href=”https://t.co/aSsrzimp4y”>pic.twitter.com/aSsrzimp4y</a>
Powell said he thinks the economy will begin to recover in the second half of this year, but the future, as always, is uncertain.
He’s not the only one having trouble spelling it out.
“Everyone’s turned into a geometrist,” said Karl Schamotta, chief market strategist at foreign exchange firm Cambridge Global Payments. He said there’s been a lot of talk about the various letter shapes of a recovery, with only one consensus emerging so far
“There’s virtually no one who thinks there will be a V-shape recovery,” he said.
Ecomomists describe economic recoveries after recessions based on the letter shapes they tend to resemble (Joan Dymianiw/CBC)
The front end of the crisis has happened and certainly looked like the start of a V — a steep, straight drop. The question is how fast and how sharply the economy will surge back to life or whether it will linger for longer at the bottom and take its time climbing back.
Schamotta believes the most likely scenario is a more gradual climb back — “something like a Nike swoosh,” as he describes it.
The shape of things to come
That’s because Schamotta and most experts believe nothing about this crisis will be straight forward. Even a long slow climb back to normalcy will be come with setbacks.
One dreaded scenario is the so-called W-shaped recovery. Just as the economy opens up and begins to rebound, a new outbreak will force everything to close down again. Some models predict many stops and restarts; a series of W’s with reopenings and closings as outbreaks occur.
And different sectors will reopen and readjust differently.
“Across industries, no two recovery paths are likely to be identical,” TD Bank senior economist Brian DePratto said in a research note.
TD Bank sees most sectors of Canada’s economy recovering in one of three ways.
Arts, entertainment, travel and tourism are projected to see an L-shaped scenario with a huge plunge and a long path back to some semblance of normalcy.
That’s bad news for cruise ships and hotels, but other businesses are looking at much more optimistic recoveries.
“Some sectors, such as food retailers and transportation, are likely to see only a modest near-term hit and a quick recovery, placing them among the Vs,” DePratto said.
The rest of the economy is probably looking at a U — a sustained period of pain followed by an eventual, gradual rally back up to where they were before this all started.
Unlike any other recession
The near universal uncertainty around this crisis is just one of the things that sets it apart from previous downturns.
“This is not an economic event, this is a health event,” said Goldy Hyder, the president and CEO of the Business Council of Canada.
As such, he said navigating the pandemic requires everyone to think differently.
The 2008 financial crisis was staggering in its size and scope at the time, but, by comparison it was a fairly simple crisis to manage.
Canada’s recession in 2008 and 2009 followed the path above, which sort of looks like something between a V and a U. (Joan Dymianiw/CBC)
Policymakers took action to prop up financial infrastructure, leaned on traditional stimulus programs to get people back to work and lowered interest rates to encourage consumers to borrow and spend.
Once the economy bottomed out, the climb back was fairly swift.
This one likely won’t be because it’s a different type of recession.
“We’re dealing not just with a medical virus that has impacted how we behave,” said Schamotta. “We’re also dealing with a psychological virus and the question now is when do we feel comfortable, when do we return to those behaviours?”
Fear is spreading like a virus
Hyder agrees and said instead of traditional stimulus, what’s needed is a boost in confidence.
“There is no jumping into the deep end here,” said Hyder. “There is tiptoe your way in, one step at a time from the shallow end.”
Consumers are scared and worried about spreading the virus, Hyder said, and businesses know the risk of reopening too early.
“What happens if you open up the economy and no one shows up?”
Just as different parts of the economy took different hits from COVID-19, they will also face different recoveries. (Michelle Nichols/Reuters)
Hyder said you can flip a switch and open stores and services, but convincing consumers to return to previous habits will be a tougher task. Any recovery model would be wise to remember that.
“It’s not any letter, it’s an oscillator fan,” said Hyder, and that scenario would come in and out of recovery for a long period of time.
“Multiple Ws together is a scenario that many people feel is possible.”
It may be daunting and disheartening to imagine the many ways in which the recovery can derail, the ways in which the outbreak may linger and dampen economic growth for a longer time than we initially thought.
‘Short memories’
But Schamotta has one caveat to all the worst-case scenarios.
“Humans have very short memories,” he said. “It’s extremely likely that human beings become fatigued of this and move on and snap back to old behaviours.”
Schamotta said that because humans have an innate desire to get back to something they recognize as normal, and that’s likely to be the case this time around, too. What shape that new normal takes is anyone’s guess, but with the alphabet soup of options on the table, one thing is certain: COVID-19 needn’t necessarily spell doom for the world’s economy.
OTTAWA – Statistics Canada says wholesale sales, excluding petroleum, petroleum products, and other hydrocarbons and excluding oilseed and grain, rose 0.4 per cent to $82.7 billion in July.
The increase came as sales in the miscellaneous subsector gained three per cent to reach $10.5 billion in July, helped by strength in the agriculture supplies industry group, which rose 9.2 per cent.
The food, beverage and tobacco subsector added 1.7 per cent to total $15 billion in July.
The personal and household goods subsector fell 2.5 per cent to $12.1 billion.
In volume terms, overall wholesale sales rose 0.5 per cent in July.
Statistics Canada started including oilseed and grain as well as the petroleum and petroleum products subsector as part of wholesale trade last year, but is excluding the data from monthly analysis until there is enough historical data.
This report by The Canadian Press was first published Sept. 13, 2024.
VICTORIA – British Columbia is forecasting a record budget deficit and a rising debt of almost $129 billion less than two weeks before the start of a provincial election campaign where economic stability and future progress are expected to be major issues.
Finance Minister Katrine Conroy, who has announced her retirement and will not seek re-election in the Oct. 19 vote, said Tuesday her final budget update as minister predicts a deficit of $8.9 billion, up $1.1 billion from a forecast she made earlier this year.
Conroy said she acknowledges “challenges” facing B.C., including three consecutive deficit budgets, but expected improved economic growth where the province will start to “turn a corner.”
The $8.9 billion deficit forecast for 2024-2025 is followed by annual deficit projections of $6.7 billion and $6.1 billion in 2026-2027, Conroy said at a news conference outlining the government’s first quarterly financial update.
Conroy said lower corporate income tax and natural resource revenues and the increased cost of fighting wildfires have had some of the largest impacts on the budget.
“I want to acknowledge the economic uncertainties,” she said. “While global inflation is showing signs of easing and we’ve seen cuts to the Bank of Canada interest rates, we know that the challenges are not over.”
Conroy said wildfire response costs are expected to total $886 million this year, more than $650 million higher than originally forecast.
Corporate income tax revenue is forecast to be $638 million lower as a result of federal government updates and natural resource revenues are down $299 million due to lower prices for natural gas, lumber and electricity, she said.
Debt-servicing costs are also forecast to be $344 million higher due to the larger debt balance, the current interest rate and accelerated borrowing to ensure services and capital projects are maintained through the province’s election period, said Conroy.
B.C.’s economic growth is expected to strengthen over the next three years, but the timing of a return to a balanced budget will fall to another minister, said Conroy, who was addressing what likely would be her last news conference as Minister of Finance.
The election is expected to be called on Sept. 21, with the vote set for Oct. 19.
“While we are a strong province, people are facing challenges,” she said. “We have never shied away from taking those challenges head on, because we want to keep British Columbians secure and help them build good lives now and for the long term. With the investments we’re making and the actions we’re taking to support people and build a stronger economy, we’ve started to turn a corner.”
Premier David Eby said before the fiscal forecast was released Tuesday that the New Democrat government remains committed to providing services and supports for people in British Columbia and cuts are not on his agenda.
Eby said people have been hurt by high interest costs and the province is facing budget pressures connected to low resource prices, high wildfire costs and struggling global economies.
The premier said that now is not the time to reduce supports and services for people.
Last month’s year-end report for the 2023-2024 budget saw the province post a budget deficit of $5.035 billion, down from the previous forecast of $5.9 billion.
Eby said he expects government financial priorities to become a major issue during the upcoming election, with the NDP pledging to continue to fund services and the B.C. Conservatives looking to make cuts.
This report by The Canadian Press was first published Sept. 10, 2024.
Note to readers: This is a corrected story. A previous version said the debt would be going up to more than $129 billion. In fact, it will be almost $129 billion.
NANAIMO, B.C. – Former Bank of Canada governor Mark Carney says he’ll be advising the Liberal party to flip some the challenges posed by an increasingly divided and dangerous world into an economic opportunity for Canada.
But he won’t say what his specific advice will be on economic issues that are politically divisive in Canada, like the carbon tax.
He presented his vision for the Liberals’ economic policy at the party’s caucus retreat in Nanaimo, B.C. today, after he agreed to help the party prepare for the next election as chair of a Liberal task force on economic growth.
Carney has been touted as a possible leadership contender to replace Justin Trudeau, who has said he has tried to coax Carney into politics for years.
Carney says if the prime minister asks him to do something he will do it to the best of his ability, but won’t elaborate on whether the new adviser role could lead to him adding his name to a ballot in the next election.
Finance Minister Chrystia Freeland says she has been taking advice from Carney for years, and that his new position won’t infringe on her role.
This report by The Canadian Press was first published Sept. 10, 2024.
