Governments across the country are spending unprecedented amounts in response to the COVID-19 pandemic – but in doing so, they’re only making up a fraction of the damage the novel coronavirus is doing to the Canadian economy.
Parliamentary budget officer Yves Giroux’s latest figures, released Thursday, estimate that the various measures to help those affected by the pandemic will add up to nearly $146 billion in new federal government spending.
In an interview on CTV’s Power Play on Thursday, Giroux said the deficit will continue to balloon past the size of the economy itself.
“It’s the largest budgetary deficit on record since the records began being collected this way in the ‘60s,” she said. “It’s something we have never seen in this country.”
If existing shutdowns remain in place through the spring and are gradually lifted over the rest of 2020 while oil prices remain low, Giroux estimates that Canada’s real GDP will fall by 12 per cent this year – nearly four times the steepest drop on record. That includes an estimated drop of a little more than $500 billion in the second quarter alone before a slow recovery period begins.
“We’re nowhere near back, even by the end of this year, where we were in the first quarter of 2020. It’ll take us two years even just to get back to those levels of nominal GDP,” Kevin Page, a former parliamentary budget officer, told CTVNews.ca via telephone Thursday from Ottawa.
“That’s just an unbelievable adjustment. We’ve not seen anything like that before.”
Giroux’s numbers are only estimates of what could happen in one of many scenarios. It’s possible that the spread of the virus will be slowed enough that society can reopen faster than expected, or that a second wave of COVID-19 cases will require reopened businesses to once again close. The latter scenario would likely result in the emergency benefits being extended, increasing their costs.
“Governments are well-known for keeping programs alive longer than maybe they need to, but at the same time we don’t know how this recovery is going to go. We may find that some of these programs need to become permanent. There are still a lot of unknowns,” Lindsay Tedds, an associate professor of fiscal and economic policy at the University of Calgary, told CTVNews.ca Thursday via telephone.
A DEEPER PROBLEM
But it isn’t just the federal government that will find itself with big bills to pay once the pandemic ends. The provinces and territories are partnering with the feds on some of their programs, and running some of their own. Page estimates that provinces that had balanced budgets may well slide into the red as a result, while those that were already spending more than they were taking in may see those deficits.
“Their deficits are going to double and triple, so their debt is going to go up as well. That will need to be financed,” he said.
Nor are local governments immune. Municipalities are facing lost revenue in everything from deferred property taxes to transit fees.
The Federation of Canadian Municipalities publicly asked the federal government last week for $10 billion to $15 billion in emergency funding, which president Bill Karsten says should be enough to replace six months’ worth of lost municipal revenues across the country.
“Something has to give. If we don’t get this minimum $10 billion … hard decisions have to be made,” Karsten told CTVNews.ca via telephone Thursday from Halifax.
Many municipalities have already started making some of those hard decisions. Halifax, where Karsten is a councillor, has laid off 1,500 casual, temporary and seasonal workers. Other local governments have also looked to layoffs, or scaled back services, or both.
Karsten describes the situation as a crisis, noting that while the federal and provincial governments can use debt financing to get through downturns, the laws governing municipalities prevent them from doing the same.
“It’s not like saying ‘we’ll just borrow the money.’ Our books need to be balanced,” he said.
Long-term cuts could also be difficult for municipalities to handle, Karsten said, as many of their services – which include water supply, emergency services, garbage collection and road maintenance – are seen as necessary.
“Those have to continue regardless of how life might change under COVID,” he said.
SO WHAT’S THE ANSWER?
When the federal government is spending more money than it is taking in, it ultimately has three options: tamping down spending, increasing revenues, or taking on more debt.
All three are politically unpalatable in different ways. Voters don’t like tax increases, don’t want to lose out on programs and services they’re already accessing, and worry about passing on escalating debt bills.
In this situation, though, the government will have to pull some combination of these three levers to make up for the sudden and unexpected increases in spending brought on by emergency COVID-19 relief programs. With interest rates at some of their lowest levels ever, many economists say borrowing and spending – in the form of a major economic stimulus package aimed at improving the nation’s infrastructure – is the best way to lead Canada’s economy to a proper recovery.
“The feds are going to have to come out … with something that signals the architecture of a stimulus package – and they can’t lowball it. It needs to be big,” Page said.
Further aiding Canada’s ability to pull this off, Page said, is the country’s low debt-to-GDP ratio. The Trudeau government has regularly defended the escalating national debt by noting that it is shrinking relative to the economy’s overall growth. Many developed countries have much higher debt-to-GDP ratios, meaning further borrowing would strain their economies much more than it would Canada’s.
“It would be a shame if we immediately, at the end of this pandemic … that people say ‘OK, now we’ve got to hit the brakes on spending, we need to get back to some lower debt-to-GDP ratios,'” Page said.
If infrastructure spending is the solution the government decides on, then Karsten says municipal governments will be happy to help see the projects through, much as they did during the post-recession stimulus blitz of the late 2000s.
But is that the form a stimulus package should take? Physical infrastructure projects tend to create jobs that mostly benefit male workers with skilled trades backgrounds, and some advocates argue that women, students and less-skilled workers are being disproportionately affected by Canada’s response to the pandemic. Tedds argues that a stimulus program should thus look for ways to specially help workers in those groups.
“Our stimulus programs have to think more about the types of people rather than the types of sectors that were hit,” she said.
“To simply roll out our usual shovel-ready infrastructure programs – that’s not going to benefit the people who were most impacted by this.”
Additionally, some sectors may look to the recovery period as a time to accelerate their moves toward automation – potentially improving their productivity but reducing the numbers of workers they need.
Tedds likens it to what Alberta’s major oil-and-gas employers did following the 2015 oil price collapse.
“It doesn’t necessarily mean fewer jobs, but it does mean potentially very different kinds of jobs that will come back online,” she said.
There could also be a major shift in the federal-provincial relationship. Page foresees the potential for that to happen as provinces look for ways to get out from high debt loads.
“This is going to drive, by necessity, a fiscal federalism, managing-the-federation-style conversation that we haven’t seen since probably the 1990s,” he said.
Over the past month-plus, the government has publicly been focused on the pandemic to the exclusion of almost everything else. Page said that is understandable, given the significant public health risk it represents, but he hopes to see a conversation about economic recovery begin soon, especially with millions of Canadians having had their jobs affected and being left unsure and anxious about what the future holds.
“Consumers’ behaviours are changing. People are afraid,” he said.
“If they could start telling people that it’s coming, I think it would lift people’s spirits – and Canada can afford it.”
El-Erian: Here's a 'nightmare scenario' for the U.S. economy – Yahoo Canada Finance
<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="The big risk with the latest U.S. jobs report is if it turns out to be a “head fake” says Mohamed El-Erian, chief economic advisor at Allianz.” data-reactid=”16″>The big risk with the latest U.S. jobs report is if it turns out to be a “head fake” says Mohamed El-Erian, chief economic advisor at Allianz.
“That’s the nightmare scenario,” El-Erian told Yahoo Finance after the US unexpectedly added 2.5 million jobs in May as states started re-opening and easing COVID-19 shelter in place measures.
“The big risk … is that this is a head fake, a major head fake that we are picking up the impact of both data distortions, and policy distortions,” said El-Erian.
<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="May’s employment report has economists scratching their heads. They were expecting the US to lose 7.5 million jobs. Instead it gained jobs, and the unemployment rate, ticked lower to 13.3%.” data-reactid=”19″>May’s employment report has economists scratching their heads. They were expecting the US to lose 7.5 million jobs. Instead it gained jobs, and the unemployment rate, ticked lower to 13.3%.
“No one was looking for an uptake in jobs.” said El-Erian. “It may be that the economy has picked up in a major way. That’s the hope. And that’s certainly what the market has embraced.”
“Or it may be two other things: that government policies were very effective in reducing those who were officially unemployed. Or it may be that the data is very, very noisy,” he added.
“What is really striking is if you look at continuing claims, they went up, not down. So every other indicator you look at suggest that the labor market is not as healthy as these numbers,” said El-Erian.
If indeed the report is a “head fake,” El-Erian warns “the political process may have moved away from relief and repair.”
“We’ve got to understand these numbers better, and we’ve got to continue with the message to Congress that there is still a big hole we find ourselves in, even if you believe these numbers,” he added.
<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="President Trump on Friday signed legislation lengthening the PPP loan program, aimed at helping small businesses keep workers on their payroll.” data-reactid=”36″>President Trump on Friday signed legislation lengthening the PPP loan program, aimed at helping small businesses keep workers on their payroll.
<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="The jobs report sent stocks soaring on Friday, with the Dow (^DJI) gaining more than 3%, and the Nasdaq (^IXIC) rallied to a record high.” data-reactid=”37″>The jobs report sent stocks soaring on Friday, with the Dow (^DJI) gaining more than 3%, and the Nasdaq (^IXIC) rallied to a record high.
<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="The Federal Reserve’s actions to combat the economic fallout of COVID-19, including backing corporate debt markets, have helped the markets rally reminiscent of the 2009 rebound.” data-reactid=”38″>The Federal Reserve’s actions to combat the economic fallout of COVID-19, including backing corporate debt markets, have helped the markets rally reminiscent of the 2009 rebound.
“In the equity market, there’s nothing more comforting than the notion that someone with a printing press in the basement and an unlimited ability and willingness to buy is your backstop,” said El-Erian.
<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="
"What we want is fundamentals to improve and validate asset prices. That’s how this is an orderly outcome. If that doesn’t happen at some point, fundamentals will assert themselves,” he added.” data-reactid=”40″>
“What we want is fundamentals to improve and validate asset prices. That’s how this is an orderly outcome. If that doesn’t happen at some point, fundamentals will assert themselves,” he added.
<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Read more:” data-reactid=”41″>Read more:
<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Find live stock market quotes and the latest business and finance news” data-reactid=”48″>Find live stock market quotes and the latest business and finance news
<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="For tutorials and information on investing and trading stocks, check out Cashay” data-reactid=”49″>For tutorials and information on investing and trading stocks, check out Cashay
<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Follow Yahoo Finance on Twitter, Facebook, Instagram, Flipboard, LinkedIn, and reddit.” data-reactid=”50″>Follow Yahoo Finance on Twitter, Facebook, Instagram, Flipboard, LinkedIn, and reddit.
Don’t Lose the Thread. The Economy Is Experiencing an Epic Collapse of Demand. – The New York Times
Despite it all — a nation on edge, with an untamed pandemic and convulsive protests over police brutality — for the first time in three months there is a scent of economic optimism in the air.
Employers added millions of jobs to their payrolls in May, and the jobless rate fell, a big surprise to forecasters who expected further losses. Businesses are reopening, and the rate of coronavirus deaths has edged down. The Trump administration has begun pointing to what are likely to be impressive growth numbers as the economy starts to pull out of its deep hole.
All of that is good news, and far better than the alternative of a continuing collapse in economic activity. But it also creates a risk: distraction and complacency.
You can already sense in the public debate over the economy that people are starting to lose the thread — viewing the slight rebound from epic collapse as a sign that a crisis has been averted. That certainly is the kind of optimism evident in the stock market, which is now down a mere 1.1 percent for the year.
But there are clear signs that the collapse of economic activity has set in motion problems that will play out over many months, or maybe many years. If not contained, they could cause human misery on a mass scale and create lasting scars for families.
The fabric of the economy has been ripped, with damage done to millions of interconnections — between workers and employers, companies and their suppliers, borrowers and lenders. Both the historical evidence from severe economic crises and the data available today point to enormous delayed effects.
“There’s a lot of denial here, as there was in the 1930s,” said Eric Rauchway, a historian at the University of California, Davis, who has written extensively about the Great Depression. “At the beginning of the Depression, nobody wanted to admit that it was a crisis. The actions the government took were not adequate to the scope of the problem, yet they were very quick to say there had been a turnaround.”
Though it may not attract the attention that reopening beaches and a soaring stock market might, the evidence is everywhere if you look closely.
Consider those seemingly great new employment numbers. It is clear that many workers who were temporarily laid off in March and April returned to work in May, such as employees at once-closed restaurants that opened up, or construction workers who returned to job sites.
But it still left the economy with 19.55 million fewer jobs than existed in February. And the rebound came in part thanks to more than $500 billion in federal aid to small businesses offered on the condition that workers be retained, under the Paycheck Protection Program.
Other data points to a severe but slower-moving crisis of collapsing demand that will affect many more corners of the economy than those that were forced to close because of the pandemic.
New orders for manufactured goods, for example, remained in starkly negative territory in May, according to the Institute for Supply Management; its index came in at 31.8, far below the level of 50 that is the line between expansion and contraction.
And despite the net gain in employment in May, there have been many announced layoffs at companies outside sectors directly affected by the pandemic. This suggests that the forced shutdown of travel, restaurant and related industries is rippling out into a broad-based shortage of demand in the economy.
Consider just a partial list of large well-known companies unaffected by the direct first-round effects of pandemic-induced shutdowns, but which have since announced layoffs: Chevron, I.B.M. and Office Depot.
Last week, the Congressional Budget Office tried to put a number on the aggregate economic activity that will be lost over the next decade compared with what was projected at the start of the year. That number is $15.7 trillion, reflecting both less economic activity and deflationary forces that reduce prices.
That is 5.3 percent less “nominal” output, meaning not adjusted for inflation, than had been forecast. For comparison, from 2008 to 2018, total nominal output came in 6 percent below the level the C.B.O. had forecast at the start of 2008.
We know how miserable that economic crisis and sluggish recovery were, with long-term costs to earnings and well-being. The C.B.O. is now forecasting that the next decade will be nearly as bad — but emphasizes that policy choices will shape how things actually evolve.
The economy is a gigantic machine in which one person’s consumption spending generates someone else’s income. The pandemic began by crushing the economy’s productive capacity — a shock to the supply side of the economy, as many types of business activity were shut down for public health concerns.
In normal times, when there is a negative supply shock (say, a year of drought that reduces agricultural crops, or new tariffs that make imports more expensive), the pain can be intense for people in sectors directly affected, yet the economy as a whole adjusts.
But this crisis is so large and so sudden that the usual adjustment mechanisms aren’t working very well.
The people losing their jobs because of shutdowns cannot easily find new ones, because so much of the economy is shuttered at the same time. The businesses in danger of closing have cut every possible expense: A hotel isn’t going to invest in new furniture or new reservation software right now. And consumer demand for some seemingly safe goods falls because those goods are complements to the sectors that are shut down.
“Hotels are locked down, so people buy fewer cars because they don’t need to travel as much,” said Veronica Guerrieri, an economist at the University of Chicago Booth School of Business. “Restaurants are locked down, so people don’t need fancy clothes because they don’t want to go out as much.”
The result is that what started as a disruption to the supply side of the economy has metastasized into a collapse of the demand side, she and co-authors say in a recent working paper. They call it a Keynesian supply shock: an inversion of the demand-driven crisis of the Great Depression described by the great economist of that era, John Maynard Keynes.
“Demand is interrelated with supply,” said Iván Werning, an M.I.T. economist and a co-author of the paper. “It’s not a separate concept.”
The demand shock, with lagged effects, is only beginning to hurt major segments of the economy, like sellers of capital goods that are experiencing plunging sales; state and local governments that are seeing tax revenues crater; and landlords who are seeing rent payments dry up.
The government can’t wave a wand and bring back industries that are semi-permanently shuttered. That original supply shock can be fixed only as public health conditions allow sports arenas and the like to reopen.
But the government can act — and has acted — to try to keep demand for goods and services at pre-crisis levels. That, in turn, can smooth the path for other sectors to grow so that there is not a prolonged depression of jobs, income and investment, with a resulting reduction in the economy’s long-term potential.
In the early phase of the crisis, Congress expanded unemployment benefits, funneled hundreds of billions of dollars toward small businesses to keep workers on their payrolls, and supported state governments, among other steps. But much of this help is scheduled to expire this summer, absent further action — and the positive jobs numbers Friday led many Republicans on Capitol Hill allied with the Trump administration to suggest that they were reluctant to do more.
It is against his backdrop that some of the most influential — and fiscally conservative — voices in economic policy are saying that further aggressive spending is needed to prevent this shock from causing long-lasting damage to the economy.
“This is the time to use the great fiscal power of the United States to do what we can to support the economy and try to get through this with as little damage to the longer-run productive capacity of the economy as possible,” Jerome Powell, the Federal Reserve chair and a longtime fiscal hawk, said at a news conference in late April.
“Please, spend wisely, but spend as much as you can!” Kristalina Georgieva, the managing director of the International Monetary Fund, implored the world’s governments at an event in May. “And then, spend a bit more for your doctors, for your nurses, for the vulnerable people in your society.”
Both the Fed and the I.M.F. more typically act as brakes on fiscal profligacy. For Mr. Powell and Ms. Georgieva to effectively beg elected officials to stop a spiraling crisis reflects the unusual circumstances of this moment and the extraordinary risk they see if government action is inadequate to the job. Their comments are the equivalent of a normally debt-averse financial adviser urging a family to borrow more money to ride out a period of illness without suffering long-term financial damage.
When the crisis we now know as the Great Depression began in 1929, President Herbert Hoover started with denial, then tried blaming other countries, then argued that there was nothing the government could really do to contain the damage.
Eventually, the Hoover administration took more aggressive action, creating a large federal program of mass employment. “He gave a speech and said that 700,000 Americans were at work on federal public works, and it was bigger than anything that had done before,” Mr. Rauchway said. “And that was true, but it was at a time when more than seven million people were out of work.”
That crisis showed how when there are profound rips in the economic fabric, repairing them isn’t a simple job, it isn’t quick, and even what seems like a huge response often isn’t enough.
It’s great that the economy is ticking up from its shutdown of March and April. And the world right now is confusing and chaotic. But that makes it all the more important not to lose focus on fundamental forces that risk holding back the economy and that, if unchecked, could mean a second lost decade in this young century.
Seniors having big impact on local economy – Quinte News
With June being Seniors’ Month, Quinte News is looking at the impact that those 65 and over have on our community and more specifically, on local businesses.
Close to 20% of the Quinte Region’s population falls into the senior category, with the area’s cost of living, natural amenities and sometimes slower pace to life, being attractive qualities for the area to have.
But it’s not just seniors relocating here that’s making a difference for the local economy.
Bay of Quinte Regional Marketing Board Executive Director Dug Stevenson says, there are plenty of older people who find our area attractive as a place to visit and spend some cash.
“One of the things that’s interesting is when you consider seniors’ spending”, he says.
“Of course they’re on a fixed income, but they have fewer things they need to pay for as well. They probably don’t have a mortgage anymore, the kids are probably gone and they’re not worried about paying for things like education, so they’ve probably got a bit more set aside for that leisure spending”.
Stevenson says from a travel and tourism perspective, the seniors group is actually more comparable to Millennials, who range between the ages of 22 and 38.
“A lot of them have no strings attached. They have a fixed income, but have money set aside and they know what they want to do and go do it.”, he says.
Quinte West Chamber of Commerce CEO Suzanne Andrews says seniors who live in the area have a strong impact on the economy, but not just as consumers of goods.
“They access a lot of services” she says. “Things like health services, some of which are privately owned businesses, or they go to hairdressers and restaurants. So definitely they are a huge economic factor when looking at the local economy and consumer spending in our region”.
Andrews also noted that while many seniors do move to our area to retire, not all of them want to get out of work completely, which adds to the local workforce.
“We are finding here in the Quinte Region especially, seniors are choosing to continue to work, maybe not at a full time level, but are available to work and look for positions that fit their experience and knowledge”, she says. “That’s definitely something for employers to think about”.
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