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Canadians had better brace themselves for an alarming new post-COVID economic world

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Justin Trudeau’s reluctance to level with Canadians by releasing the government’s death-toll projections has understandably led to nervousness. Are the forecasts so bleak the prime minister is worried we can’t handle the truth?

Yet key decision-makers suggest that the main cause for apprehension in Ottawa is not over the immediate health crisis, or even the enormous debt levels accumulated as a result of the $200-billion COVID-19 response plan.

What is keeping policy-makers awake at night is how they will restart the economy once this is all over.

On the health side, senior politicians and public servants are concerned about the spread of the virus from returning snowbirds and people who were on March break — those results have not yet worked their way into the daily updates from provincial agencies.

But the belief is that the health system will endure. It’s unlikely Canada will see an Italian-type failure, because we intervened earlier and the containment strategy has been more robust, said one senior government official. Testing and contact tracing has been slow but it will be ramped up across the country, he said.

There are concerns in the public service about the massive amounts of spending, particularly if some of it proves to be “sub-optimal” in terms of results. In common English, bureaucrats are worried the government will get ripped off by bad actors, overpay for purchases or hand out wage subsidies without adequate scrutiny. But the public policy approach at this point is that perfection is the enemy of good — the belief is that mistakes will be forgiven in the circumstances.

Business groups are complaining about the eligibility rules for the $71-billion emergency wage subsidy, and in particular the glitch in the application process that means payment may be delayed six weeks.

But this is lightning speed for a government spending program.

As Samuel Johnson remarked about a dog walking on its hind legs, while it is not done well, the wonder is that it is done at all.

What is keeping policy-makers awake at night is how they will restart the economy once this is all over

The system was not built for the massive demands that are now being placed upon it and, while the speed may not be optimal for a business weighing whether to retain workers, billions of dollars will soon be flowing to workers and those who have been laid off.

The Liberal government has often seemed to be a step off the pace, hesitant to be bold, as in the case of releasing death projections. But it has generally arrived at the right destination eventually.

However, if panic is not setting in over the health or fiscal crises, there is real anxiety about what kind of Canadian economy will emerge from the tempest.

In a typical recession, the architecture of the economy remains intact and growth comes back as demand recovers.

But small-business confidence is at an all-time low, according to a survey by the Canadian Federation of Independent Business. Many of those companies are not coming back.

There are also likely to be seismic changes among global players, as they attempt to mitigate the supply-chain shock that has held the world economy in its grip.

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In a recent article in The Globe and Mail, Kevin Lynch, former clerk of the Privy Council who is now BMO’s vice-chair, and Paul Deegan, a former deputy executive director of the White House’s National Economic Council, talked about a “global decoupling” that will see supply chains become less centralized around hubs like China.

Far from resisting this move, governments are likely to encourage and expedite it to create what Lynch and Deegan called “national critical supply capacity”.

The federal government is already sponsoring domestic production of ventilators and personal protective equipment.

That is likely to be just the start of a new industrial policy that will see government intervene in areas of the economy from which is has been absent for decades. Senior policy-makers say they have been fostering domestic food production as an insurance policy against imports drying up, for example, checking with food producers to see if greenhouse capacity is being fully exploited.

One senior federal official said he did not expect widespread de-globalization — “Too much value has been created by global supply chains” — but on the margins, retrenchment could prompt government to fill the void.

Supply management may soon expand from the dairy and poultry sectors to other parts of the economy

The conversations taking place in the upper reaches of government revolve around lessons learned from the crisis — for example, that caregivers in nursing homes and grocery checkout clerks are front-line staff, even though they are not being paid at a level consistent with the personal risk.

Does that suggest some kind of risk premium for front-line workers? Possibly. What is apparent is that discussions are taking place around the cabinet table about an expansion of government engagement in the economy unparalleled in the post-war era.

The extent of that expansion will depend on whether we see the resumption of politics as usual in the aftermath of the crisis. A recent article for the Public Policy Forum by Sean Speer, a former adviser to the Harper Conservative government, and Robert Asselin, a former senior staffer in the Trudeau Liberal government, suggested that political ideology on the role of government is going to have to be interred as the country claws its way back to economic growth. “Long held assumptions about the production economy are no longer valid,” they wrote.

They pointed out that Canada cannot rely on traditional market forces while everyone else adopts active industrial strategies.

The authors called on the government to create a new industrial plan that builds domestic capacity. “This strategy should not be temporary,” they wrote.

The most recent estimate for the deficit this year is $170 billion and rising

We are at a moment in time when old orthodoxies are being tested — just as they were in 2009 when Conservatives were forced to concede that deficit spending was necessary to prop up the economy.

Only the wilfully blind would deny that international trade has increased competition and lowered prices. But it is an uncomfortable fact that China is the source of most of Canada’s antibiotics and raw materials for our drug supply. It is equally true that China effectively blocked export of face masks during the crisis and could do the same to the drug supply in a future emergency.

Supply management may soon expand from the dairy and poultry sectors to other parts of the economy as government tries to guarantee inventory.

That would increase prices for everybody, deepening deficits and raising debt levels.

The most recent estimate for the deficit this year is $170 billion and rising. It could end up topping $200 billion, or 10 per cent of the economy.

Higher debt levels, de-globalization and rising economic nationalism will be hallmarks of the new reality. It promises to be a brave, if alarming, new world that we are about to enter.

Trudeau should share the government’s extrapolations on the likely course of the virus. As former health minister Jane Philpott noted: “This is not the time to hide bad news … we’d like radical transparency.”

But if the public is braced for impact on the spread of the virus, it may be too much information to muse on the fate of the post-COVID economy.

Source: – National Post

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Walking a 'tightrope': Bill Morneau and the path out of the pandemic economy – CBC.ca

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Now comes the hard part.

Finance Minister Bill Morneau has, in the space of a few months, approved the spending of nearly $200 billion in federal aid in a deliberate effort to shut down huge portions of Canadian society so that a contagious disease could be contained. Whole new programs have been created and adjusted in a fraction of the time normally required for governments to design and implement new initiatives.

While the virus still poses a threat, the goal of governments now is to restart the economy — or at least as much of it as can be safely restarted. Then, at some later date, it will be time to repair and rebuild.

“What I’ve been saying to to the prime minister and to my colleagues is that as hard as it’s been over the last few months … we’ll look back and say that it was tense and and urgent, but some of the really tough choices will still be to come,” Morneau said in an interview this week.

“Because we’ll need to think about where we invest and how we support people without creating bad incentives. So those are going to be tough, tough choices.”

Wake-up call in Riyadh

Morneau said the scale of the crisis started to become clear to him during a meeting of the G20’s finance ministers in Riyadh, Saudi Arabia in late February.

“I literally watched the Italian finance minister as he got a note to his desk telling him about the outbreak they had in northern Italy,” Morneau said. “Within the next hour or so, he raised his hand to say, ‘This looks like it’s going to be much more significant than we could have imagined.'”

Morneau’s office was in the late stages of finalizing the federal budget at the time; the plan was to dedicate a chapter of that budget to COVID-19 measures. In short order, however, the pandemic shoved aside all plans for a budget.

Changes to Employment Insurance were followed by the creation of two new benefits to help those who couldn’t work. A week later, those two benefits were subsumed by the new Canada Emergency Response Benefit. A wage subsidy to cover 10 per cent of an employee’s earnings was introduced. Widely criticized as too modest, the wage subsidy was subsequently increased to 75 per cent.

Both the CERB and the Canadian Emergency Wage Subsidy required the design of entirely new systems to deliver the funding.

How fast is fast enough?

In its most recent report to the House of Commons finance committee, the government listed 51 initiatives totalling $174 billion in direct supports for individuals and businesses.

All along, there were complaints that the Liberals weren’t moving fast enough or far enough. In April, the Globe and Mail reported grumbles from within government that the Department of Finance had been slow to meet the moment.

“I think when we look back five or ten years from now at the story of the pandemic response, I think the story will be that we acted in scale and with speed that was unfathomable for governments prior to this pandemic,” Morneau said.

“There were literally midnight calls with the people at the Canada Revenue Agency [or] the people who deliver the Employment Insurance system, thinking through every possible way, including the banking system, of getting funds out.”

Both things could be true, of course. The government may have moved with unprecedented speed and scale — and it may have been better off moving even faster.

Successes and failures

Asked if there’s anything he wishes he’d done differently, Morneau points to the federal government’s commercial rent relief program with the provinces, which struggled to gain traction. It might have been more effective out of the gate, he said, if it had been combined with “restrictions on commercial evictions for this period, which would have allowed it to to start with a bigger bang.”

The successes and failures of the Liberal response will be debated for years to come, but recent analysis by economists at Scotiabank estimated that federal aid at least provided a backstop for the economy — turning what could have been a drop of 10.3 per cent in real GDP into a drop of 7.3 per cent.

A closed store front boutique business called Francis Watson pleads for help in Toronto, Many businesses are likely to go bankrupt due to the COVID-19 pandemic. (Nathan Denette/The Canadian Press)

Morneau will release a new official deficit estimate on Wednesday, but the Parliamentary Budget Officer has projected a shortfall of $256 billion — a level of spending not seen since the Second World War.

“I think the essential frame from my standpoint [is] we took on the debt so Canadians didn’t have to,” Morneau said. “We were in the position to take on the investments required because we had the capacity and the ability to deliver at scale that would only be possible for the federal government.”

Scotiabank’s analysis suggests that not spending that money would have led to a weaker economy and an only slightly lower level of government debt. But Conservatives argue Morneau shouldn’t have run a series of deficits in the four years leading up to the current crisis.

An unlikely politician

Morneau has neither the political cachet nor the record of balanced budgets of his predecessors Paul Martin and Jim Flaherty. He has stiffly struggled with the public business of politics (Conservative finance critic Pierre Poilievre continues to torment him at every available opportunity) while having to defend the deficits from 2015 to 2019.

Whatever else Morneau could say about the federal government’s actions, it wasn’t obvious that he had put it on a fiscally unimpeachable path before the pandemic hit.

His lack of political polish has been a hindrance for the government. But Trudeau has kept Morneau in place; in the last 50 years, only Martin, Flaherty and Michael Wilson have held the job longer. And Morneau has had his moments — negotiating an expansion of the Canada Pension Plan, new health accords with the provinces and the purchase of the Trans Mountain pipeline.

Leader of the Government in the House of Commons Pablo Rodriguez speaks with Minister of Finance Bill Morneau before a hearing of the pandemic committee May 13, 2020 in Ottawa. (Adrian Wyld/Canadian Press)

Those who have worked with Morneau describe a serious and analytical minister; one Liberal source described him as a “Blue Liberal” who leans toward fiscal prudence but is not ideological. They say he’s said “no” to more spending requests than he’s given credit for publicly, but has also learned to seek consensus when ministers present him with new proposals.

That task — of balancing priorities — is now a massive one. “I think the tightrope,” said Mike Moffatt, an economist with the Ivey Business School and the Smart Prosperity Institute, “is getting people back to work but in a safe way.”

The government built a system to help people stay home. Now, with the spread of the virus tamped down, it wants to get as many people as possible working again. In theory, the CERB could act as a disincentive to work. But if the supports are withdrawn too quickly, many could be forced into unsafe work situations.

Kevin Milligan, an economist at the University of British Columbia who recently joined the Privy Council Office as a special adviser, has laid out a plan that would see CERB recipients transferred to the EI system, with special attention paid to parents of young children, the self-employed and those with health concerns.

A woman checks out a jobs ad in Toronto on Wednesday, April 29, 2020. (Nathan Denette/The Canadian Press)

“Our vision is that the wage subsidy needs to continue to support businesses as they get back to work … and, as that happens, the reliance on the CERB and the Employment Insurance system will reduce,” Morneau said. “But we do need to continue to recognize that there’ll be a significant number of people that won’t get back to their previous situation immediately.

“So we need to transition the CERB and the EI system so that we have the ability to support those people. How we exactly do that is something we’re working on. But clearly, we want to use the existing infrastructure of our Employment Insurance system to support people who need retraining and to think about what their next steps are.”

A stop-and-go recovery

The wage subsidy, Morneau said, could be tweaked both to expand the number of businesses eligible for it and to adjust the amount of revenue that a company is allowed to earn.

“As we redesign the wage subsidy, we’re thinking about broadening the number of organizations that can make use of that to get them closer and closer to their pre-pandemic revenue,” he said. “And that will allow them to bring people back to work in a way that makes sense for their business without the disincentive.”

Moffatt said the restart is unlikely to be “linear” — that parts of the economy could be turned on and off as outbreaks and new infections occur. A second wave of COVID-19 is still a significant threat.

But even if the federal government manages to adjust its support programs successfully, many working parents will be unable to return fully to work if they lack access to child care and schooling — services that fall under provincial jurisdiction.

A lack of child care options remains an obstacle to returning many Canadians to the workplace. (Ted S. Warren/The Associated Press)

Morneau said he’s “worried” about child care. “That’s why we’ve put in the discussions with the provinces a concern around child care, with specific dollars that we think need to be allocated to creating the necessary supports,” he said.

“Obviously, this is going to be something that will be dynamic, because the situation in the fall is going to be very much related to the health outcomes. And it’s going to have to be collaborative between the federal government and the provinces and businesses to a certain extent …”

The rebuilding phase

The federal government has offered the provinces $14 billion to cover costs related to personal protective equipment, testing and tracing, and child care. But provinces have complained about the sums being offered and the federal government’s insistence on the funds being used for specific purposes.

The restart should eventually set up a recovery phase, when the damage can be assessed and a concerted effort to rebuild can begin. That will present another profound challenge.

The federal government is going to be under pressure to address income and risk inequities in the working world that were exposed by the pandemic. (Jeff McIntosh/The Canadian Press)

The economy is not likely to return to full power immediately. Some businesses and jobs will be permanently lost. There will be demands to address both the vulnerabilities the pandemic exposed (long-term care, child care, precarious work and income inequality) and to seize the moment to build for the future (with a focus on green investments). All that will contend with a need to show that the federal government’s debt can be kept within a manageable range.

Morneau talks about investing in “the gaps that we’ve unearthed” and paying attention to those in vulnerable positions (young people, women and those in low-paid jobs), while looking ahead to where the Liberals think the economy needs to go. “You’ve heard us talk about investing for a green economy,” he said. “We know that’ll be important.”

‘Selling’ the recovery plan

The Scotiabank report noted that Canada’s net and gross government debt still compare favourably to other G7 countries, but one major rating agency has now downgraded Canada’s credit rating. The task of managing and selling the government’s approach to the deficit will be a significant test of Morneau’s ability to project strength and credibility.

“Morneau’s actually going to have to really sell what he’s doing,” Moffatt said, “because I don’t think there is going to be an obvious answer. There is going to be a lot of debate about what should our emphasis be, on reducing the deficit relative to stimulus spending and helping out portions of the economy that are still hurting.”

Tax increases are “not on our agenda” because they might hold back the recovery, Morneau said.

The shape of future spending restraint is less clear. The Liberals came to power arguing that prioritizing balanced budgets above all else was misguided.

The Conservatives presumably will argue for a harder line on the deficit, but Morneau suggested the Liberals’ post-pandemic approach will be broadly in line with their pre-pandemic philosophy.

“What we did with the first four years of government is we made those investments in people. We created the employment growth together with Canadians. That got us into a very strong position,” he said. “We did it while being fiscally responsible, reducing the debt and the deficit as a function of our economy.

“That’s why we want to get back to. We want to get back to making those investments that are going to enable us to grow together and create opportunities. Obviously, we’ve had a huge shock … but the only way to deal with that is if we get back to investing for growth and for employment and for the kind of economic opportunities that come from that. That’s the recipe.”

That might sound easy. It won’t be.

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Across Sun Belt, hopes for economy give way to renewed fears – Yahoo Canada Finance

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Across Sun Belt, hopes for economy give way to renewed fears

ST. PETERSBURG, Fla. — At the beginning of March, Joey Conicella and Alex Marin were riding high. Their new Orlando restaurant, Hungry Pants, had drawn rave reviews. With revenue rising, they planned to hire more servers. Sunday brunch service was coming soon.

That was just before the coronavirus struck suddenly, forcing them to close. But in May, as authorities eased safety and social-distancing rules, Hungry Pants reopened at smaller capacity, fueled by hope, hand sanitizer and a government loan.

Now, a spike in confirmed viral cases is making Conicella and Marin anxious about the future — for their business and for the region — even as they keep their restaurant open.

“It’s been a roller-coaster ride,” Conicella said glumly.

For residents across America’s Sun Belt — business owners and workers, consumers and home buyers — the past three months have delivered about the scariest ride in memory. With confirmed viral cases surging through the region, it’s far from clear whether the stops, starts and bumps in the economy have ended. Or are they the new normal? Will the Sun Belt remain gripped by doubt and uncertainty for months or years?

What is clear is that no one feels able to relax and assume the best.

“I’m very nervous,” said Danielle Judge, owner of Rowdy’s Pet Resort in Apollo Beach. “I’ve put my life’s work into this business, and it’s really hanging on a thread.”

Judge had thought the worst was over after she had managed to reopen in May and her loan from the government’s Paycheck Protection Program had gone through. Now, her business is stalling once again as reported viral infections have accelerated. Again, she’s worried.

“I didn’t fathom that a whole country could stay shut down and affect people’s businesses and people’s livelihoods for the duration of time that it has,” Judge said.

That unease stems from a disturbing truth about the pandemic: No one, not even the top experts, can say when a vaccine or an effective treatment might be in sight.

“We don’t know when this Covid-19 is going to end,” said Aakash Patel of Tampa, who runs Elevate, a consulting firm involved in public relations and marketing for businesses.

Patel had thought things would return to “normal” by perhaps September. Now, he’s thinking January. And he’s trying to stay upbeat.

“We all fell together,” he said. “We’re all going to rise together.”

It isn’t just business owners in the region who fear for the future. It’s consumers, too.

In Scottsdale, Arizona, Jim and Bobbi Moss had been banking on what looked like a promising economic rebound, only to lose some hope and retreat into a strict limit on their discretionary spending. They now make all their meals at home, and online shopping, Bobbi Moss said, is limited to items that “sustain daily living.”

“We’re not spending online, saying, ‘Gee, it might be nice to have this or do that,’ “she said. “We’re not doing any of that.”

The couple, who run a tax consulting and financial services business, say many of their clients — from couples in their 30s to retirees in their 80s — feel whip-lashed by an economic stall-out after the brief rebound a few weeks ago. Clients are rethinking investments, Jim Moss said, or delaying home purchases. Some are considering reverse mortgages because they worry about their cash flow.

“Three weeks ago, people were cautiously hopeful,” Bobbi Moss said. “Now, it’s frustration.”

In Arizona, Gov. Doug Ducey has ordered bars, nightclubs and water parks to close again for at least a month. Those businesses had been allowed to reopen when a previous stay-at-home order expired in mid-May.

In Texas, too, Gov. Greg Abbott in May had green-lighted one of the country’s earliest and most aggressive re-openings. But by the end of June, the state’s daily rates of newly confirmed cases and hospitalizations had quadrupled.

So last week, the governor reversed course. He shuttered bars, restricting restaurant dining and barred elective surgeries in eight counties. On Thursday, he went further: He issued a mandatory face-mask order for most of the state.

Florida officials have also shut down bars for a second time. Yet the state’s approach has been defined by a patchwork of varying rules, with officials in South Florida, where viral cases have spiked, being the most stringent. In Central Florida, by contrast, some theme parks have reopened. Disney’s Magic Kingdom and Animal Kingdom are set to reopen July 11, Epcot and Hollywood Studios four days later.

Danielle Savin has been a personal witness to the wildly uneven ways in which states have responded to the virus.

Savin owns two bars — one in New York, one in Miami — that were forced to close for months. When the pandemic first hit and New York was the country’s epicenter, she feared most for her business there. No longer. Now, it’s the Miami location she worries most about. She’s required to close it at midnight because confirmed cases in Florida have soared.

“Being in Florida right now with COVID is like trying to play Pin the Tail on the Donkey at a 5-year-old’s birthday,” said Savin, co-owner of Bob’s Your Uncle, a bar with a neighbourhood vibe that had been open a year when the virus struck.

The business model had to be swiftly changed, with more focus on food, more kitchen staff and a staggering of shifts to comply with restrictions. Sales have declined, though. Savin and her co-owner have been working with their landlord to help with rent payments. Still, she started a GoFundMe page that has raised about $3,000 to help struggling employees.

“It did feel when we reopened again that we had to open a restaurant from scratch,” she said.

It is a sentiment felt, too, by Joe Ables, who owns Saxon Pub, a live-music venue in Austin, Texas. Ables had closed his doors in March. He didn’t reopen even when Texas allowed it at up to 50 per cent customer capacity.

“I lose less money by staying closed,” Ables said.

He sought and received federal aid to support his six full-time employees. But given that Texas has now shuttered its bars twice, he’s settling in for what he fears will be a long dark period for businesses like his. Ables thinks the state will be cautious and likely slow about reopening them again.

In Austin, which bills itself as the “Live Music Capital of the World,” Ables has watched some clubs close for good and musicians and production workers leave the city. The state’s second shutdown of bars could inflict further damage.

“I’m worried about the club scene,” he said. “There is permanent damage.”

Even so, Ables said he holds out hope for an eventual rebound, perhaps in 2021.

“I think we all have to believe,” he said, “regardless of whether it’s war or famine, that we’re going to come through it.” ___

Vertuno contributed from Austin, Texas. Kelli Kennedy also contributed to this report from Fort Lauderdale.

Tamara Lush And Jim Vertuno, The Associated Press

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Croatia holds election amid sharp economic downturn, rising coronavirus infections – The Guardian

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By Igor Ilic

ZAGREB (Reuters) – Croatia held an election on Sunday at a time of rising coronavirus infections and a sharp economic downturn from the pandemic, with the outcome likely to lead to political negotiations to form a new government.

The ruling centre-right Croatian Democratic Union (HDZ) has had a slight advantage in most opinion polls over its main rival, the Social Democrats (SDP), but neither party is seen being able to govern on its own.

“At these challenging times both for public health and the economy Croatia deserves to be led by experienced and responsible people,” Prime Minister and HDZ leader Andrej Plenkovic told supporters this week, hinting at his two top opponents’ lack of vision and experience.

They are SDP leader Davor Bernardic and popular singer Miroslav Skoro, whose nationalist and eurosceptic Domovinski Pokret (Homeland Movement) has fared third in the opinion polls with just above 10% support, compared with close to 30% for the two top parties.

Polling stations opened at 0500 GMT and will close at 1700 GMT when the exit polls will be released. The first preliminary official results are expected around two hours later.

“My choice is Skoro as I believe his party wants stability and to stop the young people from moving to seek jobs abroad,” said Ilija Grlic, a voter from the Zagreb area.

The new government will have an uphill task to keep a grip on the coronavirus while trying to restore the economy, expected to shrink some 10% this year. Tourism revenues are forecast to slump 70%.

“I think that the SDP could be a relative winner, but that the HDZ could be the one to eventually form a (coalition) cabinet,” said Kristijan, a teacher, before casting a ballot.

Some analysts believe that the two biggest parties may be forced to join forces, as the alternative of trying to form a stable government with junior partners, such as Skoro’s Homeland or the conservative Most (Bridge) party, may prove difficult.

Both Plenkovic and Bernardic have firmly rejected the idea of a “grand coalition”.

Croatia has reported a relatively small number of coronavirus infections — 3,000 COVID-19 cases and around 100 deaths recorded so far — but infections have accelerated in the past two weeks, with the daily number of new cases currently peaking at around 80.

(Reporting by Igor Ilic; Editing by Frances Kerry)

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