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Federal finance note says lifting lockdowns, restrictions no sure road to economic recovery – CBC.ca

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Government officials believed in late summer that an economic recovery would not magically follow if lockdowns and public health restrictions disappeared, a newly obtained federal document shows.

The internal briefing note says a key to recovery is the level of trust people have in their government’s ability to contain the spread of COVID-19.

The Canadian Press used the Access to Information Act to obtain the Finance Department briefing note, prepared in early September.

While restrictions and lockdowns are common ways to reduce transmission of the novel coronavirus, the note also lays out other options, including increased testing and contact-tracing.

It says countries that have managed to reduce transmission of the virus to very low levels have seen more people visit retailers, use transit and head to workplaces.

Countries that haven’t kept COVID-19 under control, including those where restrictions have been loose or non-existent, “have had a much more uneven recovery,” says the briefing note.

“Lifting restrictions is not sufficient for a full economic recovery,” the note reads, adding that “evidence has shown that to unleash demand, it is critical that individuals also feel safe and confident in the ability of their government to contain the virus.”

A ‘patchwork’ approach

The words in the briefing document echo much of what the government heard over the fall — and more recently, after the Liberals pledged to spend up to $100 billion if necessary on an economic recovery plan.

“Restoring public confidence in the economy requires systematic, widespread and rapid testing and contact tracing — something we have been calling for since the spring,” said Robert Asselin, senior vice-president for policy at the Business Council of Canada.

“Nine months into this crisis, it is still not in place in most of the country. The patchwork approach to testing and tracing has been inefficient and very costly from both a health and economic standpoint.”

Nearing the end of the year, Canada had recouped just over four-fifths of the three million jobs lost in the spring, and real gross domestic product was about four per cent below pre-pandemic levels after posting a historic decline in the second quarter.

Aiding in that rebound were low levels of COVID-19 transmission, which suggests “Canada has managed to balance both the health and economic risks related to the pandemic relatively well,” the briefing note says.

“Nevertheless, the experience of other countries that have witnessed resurgent or second waves of infection suggest that health risks will remain a threat as we move into the fall and further along the economic recovery path.”

Fresh hope for 2021

Canada’s economy ticked along even as case numbers grew, providing what experts say is an inkling of hope for 2021 despite the imposition of new restrictions in parts of the country.

The restrictions have hit some sectors harder than others. The briefing note foreshadowed how provinces and municipalities may have to more readily close or limit hours for some businesses, such as restaurants and bars, “and will need to be equipped to rapidly identify and trace outbreaks.”

The briefing note also says efficient contact-tracing “goes hand-in-hand” with testing to reduce transmission. By the time the briefing note was written, testing had hit about 48,000 per day in Canada, or abut 0.13 per cent of the population, as of the end of August.

“Evidence varies on the appropriate level of testing, but increased capacity and more rapidly available testing would be an important asset to the economic recovery in the fall,” officials wrote.

Trevin Stratton, chief economist at the Canadian Chamber of Commerce, said the country needs to start using more rapid tests to get ahead of COVID-19 while officials work to roll out vaccines.

“By knowing who has been recently exposed to the virus, in many cases even when people are infected but asymptomatic, we can contain its spread through accurately targeted responses,” he said.

“This approach will limit the need for blanket response measures like lockdowns, which cause serious collateral damage.”

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Third wave, constrained government spending biggest risks to economy: Poloz – BNN

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Former Bank of Canada Governor Stephen Poloz said the worst thing that could happen to the Canadian economy during the COVID-19 pandemic is for the federal government to put the brakes on its virus-related spending spree.

“My biggest risk is we get ‘Wave Three’ and more, and for that reason maybe governments lose faith in the model and they have to constrain their spending. That would be my biggest concern, but right now, I’m feeling more optimistic given the vaccines,” he said.

While Canada entered the pandemic with an economy that Poloz described as “the best shape it’s been in for a long time,” data from Finance Canada shows the government’s support measures relative to GDP were among the highest across G7 countries.

But Poloz said it’s because of the targeted government aid and temporary measures like mortgage payment deferrals that Canadians have been “well-armed” through the pandemic.

“It boosted their savings quite a lot and at the same time they’re actually spending more,” he said. “So we have a very lively consumer with pent-up demand.”

He acknowledged there has been some permanent loss of demand and damage done to the economy because of the pandemic, but added the government appears to be thinking differently about fiscal policy.

“It sounds like they’re focusing a lot more on what we call ‘structural’ policies or investments. The first thing you think of is infrastructure. For example, you do a big piece of infrastructure and it serves us for 30, 40 or 50 years and it adds to the productivity of the economy,” he said.

“Anything that comes along that can tilt upwards the long-term growth trend of the economy will be really timely at this stage.”

Poloz said sustainability will be key when it comes to Canada’s ballooning debt.

“The rate of growth in the economy needs to exceed the rate of interest you must pay on the debt. Provided it does so, the stock of debt will shrink as a share of the economy while they service the debt. And today, debt service is quite inexpensive,” he said.

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Canadian dollar drops, posts weekly decline on greenback short-covering

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Canadian dollar

By Fergal Smith

TORONTO (Reuters) – The Canadian dollar weakened against its U.S. counterpart on Friday as a decline in risk appetite led to broader gains for the safe-haven greenback, with the loonie giving back this week’s gains despite data showing record home sales.

The Canadian dollar was trading 0.8% lower at 1.2732 to the greenback, or 78.54 U.S. cents, pulling back from a near three-year high on Thursday at 1.2621. For the week, the loonie was down 0.4%.

“It has primarily been some covering of short U.S. dollar positions,” said Bipan Rai, North America head of FX Strategy at CIBC Capital Markets. “It’s a move in line with what we have seen in other currencies … So it’s not the Canadian dollar on its own.”

Higher U.S. Treasury yields in anticipation of additional fiscal spending, have been supportive of the greenback since earlier this month.

President-elect Joe Biden proposed on Thursday a stimulus package of $1.9 trillion, but investor sentiment wavered as China reported the highest number of daily COVID-19 cases in more than 10 months.

Investors have also been grappling with the slower than expected rollout of vaccines. Pfizer Inc said it would slow production of its vaccine due to changes to manufacturing processes aimed at boosting production.

Global shares fell and U.S. crude oil futures settled 2.3% lower at $52.36 a barrel. Oil is one of Canada‘s major exports.

Canadian home sales rose 7.2% in December from November, setting a new record, the Canadian Real Estate Association said.

The housing market has benefited from record-low interest rates set by the Bank of Canada. The central bank is due to make an interest rate decision next week.

Canadian government bond yields were lower across a flatter curve in sympathy with U.S. Treasuries. The 10-year was down 4.6 basis points at 0.810%.

 

(Reporting by Fergal Smith; Editing by Andrea Ricci and David Gregorio)

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Third wave, constrained government spending biggest risks to economy: Poloz – BNN

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 on


Former Bank of Canada Governor Stephen Poloz said the worst thing that could happen to the Canadian economy during the COVID-19 pandemic is for the federal government to put the brakes on its virus-related spending spree.

“My biggest risk is we get ‘Wave Three’ and more, and for that reason maybe governments lose faith in the model and they have to constrain their spending. That would be my biggest concern, but right now, I’m feeling more optimistic given the vaccines,” he said.

While Canada entered the pandemic with an economy that Poloz described as “the best shape it’s been in for a long time,” data from Finance Canada shows the government’s support measures relative to GDP were among the highest across G7 countries.

But Poloz said it’s because of the targeted government aid and temporary measures like mortgage payment deferrals that Canadians have been “well-armed” through the pandemic.

“It boosted their savings quite a lot and at the same time they’re actually spending more,” he said. “So we have a very lively consumer with pent-up demand.”

He acknowledged there has been some permanent loss of demand and damage done to the economy because of the pandemic, but added the government appears to be thinking differently about fiscal policy.

“It sounds like they’re focusing a lot more on what we call ‘structural’ policies or investments. The first thing you think of is infrastructure. For example, you do a big piece of infrastructure and it serves us for 30, 40 or 50 years and it adds to the productivity of the economy,” he said.

“Anything that comes along that can tilt upwards the long-term growth trend of the economy will be really timely at this stage.”

Poloz said sustainability will be key when it comes to Canada’s ballooning debt.

“The rate of growth in the economy needs to exceed the rate of interest you must pay on the debt. Provided it does so, the stock of debt will shrink as a share of the economy while they service the debt. And today, debt service is quite inexpensive,” he said.

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