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'By definition a temporary shock:' Canadian economy likely set for sharp rebound, despite current panic – National Post

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OTTAWA — The Canadian economy could be headed for a sharp rebound by the end of the year or even earlier, economists say, despite a recent crash in stock markets that have generated apocalyptic fears around the globe.

The rapid spread of COVID-19 triggered a catastrophic selloff in recent weeks that has, by some measures, cut even deeper than the 2008 financial crisis, including the worst oil price shock seen in decades.

Economists say it is highly uncertain when markets might return to normal. But due to the fast-paced nature of pandemics, an eventual containment would spur a hasty recovery as consumer spending lurches upward and businesses fill the gaps in their supply chains.

“The virus itself, and how it’s evolving, is almost by definition a temporary shock that’s going to be reversed,” said Jean-François Perrault, chief economist at Scotiabank.

The comeback could begin as early as this summer, depending on whether governments can effectively contain the outbreak, economists say, while cautioning that a timeframe is especially hard to predict given the limited understanding of COVID-19.

Such a rebound would ease the significant political pressure now facing Prime Minister Justin Trudeau, who is being called upon to act fast as virus worries become elevated. The Liberal government has for years aggressively sought to take credit for any positive economic indicators in Canada, and the recent downturn has severely restricted one of its key talking points as it prepares to table its 2020 budget.

Fiscal measures expected to be announced soon by Finance Minister Bill Morneau will also help lift the economy out of a potential short-term recession, economists say. Morneau has already announced $10-billion in credit to small businesses to make up for lost cash flows. A surprise interest rate cut by the Bank of Canada on Friday, down to 0.75 per cent, will also fuel plenty of low-cost debt spending that will quickly spread through the economy.

“Once we go back to normal, all that stimulus is going to lead to some pretty strong growth,” Perrault said.

Still, economists caution Canada is likely headed for deep recession in the near term. And a failure to quickly contain the virus could add to the current turmoil, making it increasingly difficult for the global economy to limp back to health.

The Canadian economy is widely expected to grow at an average rate between 1.6 per cent and 1.8 per cent over the next five years. In the second quarter, by comparison, Bank of Montreal analysts see that number falling to a staggering negative six per cent. By the third quarter, they forecast that number to climb back to 4.5 per cent growth, or a roughly ten per cent swing.

“We could see some pretty extreme economic numbers in the coming months,” said Doug Porter, chief economist at BMO.

Porter said market fears are entirely justified, given the sheer precipitousness of the recent market crash. But like others, he sees recent market panic subsiding within a relatively short period.

“It’s almost like we’ve taken the 2008 situation and accelerated it to within a one-month timeframe,” he said.

“But I do think there is some tendency, when there are so many waves of tough headlines in such a short period, to lose sight of what’s just over top of the hill.”

All that stimulus is going to lead to some pretty strong growth

Brian DePratto, director of economics at Toronto Dominion Bank, estimates that total fiscal spending measures by the federal government could be around one per cent of GDP, or roughly $24 billion. Such spending is likely to offer a significant bridge for small companies and taxpayers as they wait for the spread of the virus to slow.

“You’ve got a whole lot of juice waiting to bring things back up to speed,” DePratto said.

However, that sharp return is not likely to be extended to the oil patch, where recoveries tend to take much longer to materialize. Canadian oil producers have been navigating low oil prices since 2014, which have been exacerbated by a lack of new pipeline capacity that has pummelled prices for Canadian crude.

“What we’ve learned in the past is the lingering impact on the Canadian oil sector, and investment there, could be quite long lived,” he said. “We were not even really recovered from the last shock at the point where this one came.”

New spending measures would add significant new sums to the federal deficit, which was already expected to come in at $26.6 billion this year, higher than an earlier estimate of $19.8 billion. But economists say Ottawa’s net debt as a percentage of GDP, currently around 30 per cent, remains among the lowest in developed countries, and at low interest rates is of minimal risk to federal coffers.

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We're at war and need wartime institutions to keep our economy producing what's necessary | TheHill – The Hill

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There can be no question about the nation’s current predicament. We are at war. We are faced with a public health crisis, yes, but the virus now ravaging our communities is a lethal invader taking American lives, threatening our way of life and destroying our productive capacity and economic health. 

We’re waging battle on the public health front with thousands of the most heroic and able health professionals on the planet, yet at the same time, it appears that despite Congress’ record $2 trillion relief bill we have no wartime strategy to get needed equipment where it is needed or to save our economy. We have no coordinated plan to mobilize workers, produce needed medical supplies, and distribute these to the facilities that need them.

We’ve faced down war on our people on our own shores before, so why not look to those occasions for clues as to how it is done? Many of the answers we’re looking for to respond to our current crisis and associated production shortfalls can be found in the measures taken by wartime presidents Franklin Roosevelt and, before him, Woodrow Wilson.

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The key to keeping wartime production humming has always been public collaboration, with the public firmly in the driver’s seat, with private producers.

The U.S. took such measures when Pearl Harbor was bombed. President Roosevelt established a War Production Board (WPB) to coordinate the repurposing and expansion of factories; the re-routing of existing and opening of new distribution channels, and countless other tasks entailed by the productive and distributive ramp-up necessitated by the war. Before that, President Wilson established a War Industries Board (WIB) to achieve the same ends during the First World War mobilization. 

Roosevelt’s WPB worked in tandem with Herbert Hoover’s and his Reconstruction Finance Corporation (RFC), the already-existent financing arm of the New Deal. The RFC had been patterned after Wilson’s War Finance Corporation (WFC) of the preceding era, established to work with the WIB in overseeing and funding U.S. mobilization for the First World War. 

The WFC and the RFC directly financed mobilization, using a broad array of financing tools. They made direct grants, provided inexpensive credit or loan guarantees, and in many cases took equity stakes in individual businesses, thereby both recapitalizing them and taking internal governance rights to help guide production flexibly from the inside. 

Given the success of this model in our most “existentially” threatening earlier wars, why not update it now as we grapple with another lethal invader? 

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I have been advocating, in some cases on my own and in some cases with others, a number of possible models for a contemporary RFC for some years now. The idea must be not just to address crises ad hoc after they have emerged, but to treat healthy and ongoing ‘reconstruction’ and national development proactively as an always-necessary, continuous process in need of an effective and democratically accountable coordinator. Think of it as a smart industrial policy tool for managing a permanent policy need in any world, such as ours, in which technical needs and technologies themselves constantly evolving. 

A National Investment Authority (NIA), for example, which I first floated with my colleague Professor Omarova early in 2015, would develop, coordinate, and oversee the financing and execution of a coherent strategy of perpetual, across-the-board national development, in collaboration with private sector agents whose industries are implicated by particular projects. 

My National Investment Council (NIC), introduced more recently, would collaborate more with already-existing federal agencies whose mandates are implicated by specific industrial and infrastructural projects, bringing them together as the Financial Stability Oversight Council (FSOC) does our multiple financial regulators. It would accordingly resemble not only the RFC but also the Board for National Investments (BNI) advocated by J.M. Keynes in the 1920s. 

Either model would include a direct investment arm, which would act both in primary and in secondary to ensure both public and private sector provision of critical public goods. What makes these models especially relevant today is that they are designed to be platforms of precisely the kind that we need to survive our pandemic. 

Right now, they would mobilize a coherent productive response to the COVID crisis. They would inject capital into businesses that need it, take direct equity stakes in them as necessary, and direct resources coherently toward the production of what must be produced both to keep our people healthy and our economy humming. 

In recent weeks, my friends James Galbraith and Michael Lind have proposed an ad hoc Health Finance Corporation (HFC) to address the COVID crisis. Like the NIA and NIC, it is inspired by and patterned in part after the RFC. I find much to admire in this proposal, as does presidential candidate Bernie SandersBernie SandersOvernight Energy: Oil giants meet with Trump at White House | Interior extends tenure of controversial land management chief | Oil prices tick up on hopes of Russia-Saudi deal Oil giants meet at White House amid talk of buying strategic reserves The Hill’s Campaign Report: Biden struggles to stay in the spotlight MORE (I-Vt.), who has proposed his own variant of it. I think we’ll do even better, however, to institute something more permanent.

Unless we’re all killed by the present pandemic, there will be others. And just as importantly, reconstruction and development — national self-renewal — are forever. 

Robert Hockett is the Edward Cornell professor of law at Cornell University, Visiting Professor of finance at Georgetown’s McDonough School of Business, and consulting counsel at Westwood Capital in New York City. Formerly with the Federal Reserve Bank of New York and the International Monetary Fund, he is a frequent advisor to legislators and regulators in Washington and New York.

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Opinion: Reality check: The economic crash is significant but it's not the apocalypse – Calgary Herald

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Stock markets have entered bear market territory meaning that they have lost 20 per cent of their value and in short order. Is the stock market’s reaction overstated? From an economic perspective, coronavirus is big. It started with an interruption in China’s output and if that wasn’t mainstream enough, now global travel is being interrupted, events are being cancelled and large social events are being prohibited. Meetings are being moved to virtual ones and extended breaks are being imposed on schools. This is disrupting our lives.

When the sub-prime mortgage fiasco resulted in the global financial crisis, the U.S. stock market collapsed as the Dow Jones Industrial Average index fell from a high of over 14,000 to a low of around 7,000 over a period of 18 months. There was a fear that the globe was entering a period of a global depression much like what had happened in the 1930s. That fear proved unwarranted as the global economy rebounded and the stock market resumed its upward trend. There are many reasons that the global economy was more resilient this century versus in the 1930s and the banking rules have been largely pointed to. I would posit that the degree of globalization, trade, availability of food, preservatives and energy, along with the portion of the population that is not living in abject poverty are all in the mix as to why the 2008 recession did not become a depression.

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"Sledgehammer" policies will destroy us; we need open economy says Johns Hopkins professor | – Kitco NEWS

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[embedded content]

Government-mandated policies of self-isolation will cripple the American economy, and the draconian measures taken to contain the pandemic are not necessary, this according to Steve Hanke, professor of applied economics at Johns Hopkins University.

“With the economy shutting down, the cost is going to be absolutely phenomenal,” Hanke told Kitco News.

Hanke likened the response to the virus from the U.S. and many Western European nations to a “sledgehammer.”

“The sledgehammer approach being used in most European countries and the United States is turning out into a very costly mistake. And what I mean by sledgehammer is they haven’t planned anything, they just have a blanket program where we’re all locked in our condos or houses and can’t move, and the economy shuts down,” he said.

Instead, governments should take the model that Sweden has set, Hanke said.

“If you look at some place like Sweden, Sweden has a very laissez-faire, very targeted approach, and they’re doing very well. The kindergartens are still open, the grade schools are still open, most factories are still open in Sweden. They are not imposing this sledgehammer and essentially wiping out the economy,” he said.

“The places that have done well in controlling and counting properly the victims of this pandemic are countries that have small, efficient governments, and free market economies. You look at Singapore, Hong Kong, they’re right up there,” he said.

Additionally, these nations have all practiced the “five P’s”: prior preparation prevents poor performance, Hanke said.

The U.S. is now the country with the highest number of COVID-19 cases in the world, and the majority of the country has not yet been tested.

“Wherever the five P’s have not been applied, you have a disaster,” he said.

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