As the folk tales tell us, it is a fool who tries to please everyone.
But as the finance minister in a minority government that will one day soon have to face the electorate, Chrystia Freeland must do her best to satisfy a majority.
Critics, including some in the suffering airline industry, complained that this week’s fiscal plan does not spend enough on them. Fiscal conservatives worried about the deficit and wonder how Freeland will pay for what she has spent already. Pundits are already demanding to know details about how she will fulfil her plan to restart the economy once the coronavirus has been driven off by vaccines.
Despite Freeland’s tone of confidence, the disruptive impact of COVID-19 has generated many long-term uncertainties.
Even as she scrambles to solve current and pressing economic problems, the list of potential future pitfalls is long and the effects of each are highly uncertain. The problem — for her, for us and for business — is that this recession is so different from the economic crises we have suffered in the past. None of us know how things will turn out.
Borrowing is easy
Despite a projected deficit of more than $380 billion and a debt expected to soar past $1 trillion, Freeland, who is also deputy prime minister, has reassured Canadians that payments on that debt remain affordable. But just as in your own household, debt is notoriously easy to run up and hard to run down.
While interest rates are low now and the U.S. Federal Reserve — which strongly influences rates here in Canada — has promised to keep them low until the economy bounces back, market forces are telling us that long-term commercial interest rates are on the rise.
Extraordinarily low interest rates have led to extraordinary borrowing by governments, businesses and ordinary Canadians — and some say we are reaching the limit.
Some financial observers, including Martin Wolf at the Financial Times, have warned that the world may be on the cusp of a sudden shift from 40 years of falling to rising inflation. If that were to happen, governments and their central bankers would be forced to decide whether to quell it with higher interest rates in spite of the effect on their own borrowing costs.
While Freeland said that her spending will be based on long-term borrowing locked in at current low rates, costs could rise. Just as you must periodically renew your mortgage, each year governments and companies must go back to the market to replace their portfolio of existing bonds as they come due, and that must be done at the interest rate when they do it.
So long as interest rates stay low and the economy continues to grow, Canadian personal borrowing — which Equifax just reported has hit a staggering $2 trillion — is nothing to worry about. A lot of that debt is backed by high and rising house prices. But rising rates and falling house prices, or a continuing recession that leads to job losses, could make that debt unbearable, damaging a crucial motor of the Canadian economy.
Canada is a trading nation, and even if the domestic economy continues to tough it out, it will be hard to prosper if our trading partners weaken.
Last week the economy of the United Kingdom, with whom Canada is now negotiating a trade deal, plunged into its deepest recession in 300 years — forcing it to cut overseas aid to places that are even worse off.
Many countries around the world, including our nearest neighbour, continue to suffer from the economic impact of the pandemic — making things much worse than when a disaster hits a single part of the world, allowing other economies to help bail them out. Our trade partners may not be in a buying mood. Trade protectionism will be a temptation.
While economic growth slows and businesses go broke, among the bright spots have been financial markets that keep nudging new highs. Rising stock prices are cheering for those with cash invested, but there are growing fears that market darlings such as Tesla, up 600 per cent this year, may have become detached from the real economy.
Some analysts worry that the current casino mentality cannot be sustained and will lead to a reckoning. With interest rates already at rock bottom and borrowing already so high, preventing damage to the crucial financial markets from a new panic will be harder than during previous bailouts.
This gloomy list of long-term potential worries for the finance minister is only partial. Some fear disruption to education will lead to a news skills gap and put an even greater wedge between the rich and the poor. Others fear a crash in the value of commercial property will have a lasting effect.
Lower immigration, a loss of entry-level jobs in restaurants and retail and a long-term hollowing out of the economy are only some of the effects that could make things worse.
But rather than just make us sick with worry instead of sick with COVID-19, the point is that in the wake of a major recession of the kind the world is facing now, there is no way that Chrystia Freeland or anyone else — no matter how smart — can tell us with any certainty how the economy will unfold over the next few years.
WATCH | From education to jobs, how to manage the pandemic’s financial challenges:
What Canada needs is a capable person in charge, a safe pair of hands, to help us make the best of a perilous and unknown future.
And there is no reason that future could not also include a strong recovery as new businesses take advantage of plentiful labour, less expensive office and retail space and a flood of pent-up demand to come back even stronger than before the pandemic struck.
Follow Don Pittis on Twitter: @don_pittis
Canadian dollar moves to extend weekly win streak as oil rebounds
The Canadian dollar strengthened against its U.S. counterpart on Friday and was on track for its seventh straight weekly gain as oil prices rose and domestic data added to evidence of robust economic growth in the first quarter.
Canadian factory sales rose 3.5% in March from February, led by the motor vehicle, petroleum and coal, and food product industries, while wholesale trade was up 2.8%, Statistics Canada said.
The price of oil, one of Canada‘s major exports, reversed some of the previous day’s sharp losses as stock markets strengthened, though gains were capped by the coronavirus situation in major oil consumer India and the restart of a fuel pipeline in the United States.
U.S. crude prices rose 1.2% to $64.61 a barrel, while the Canadian dollar was trading 0.6% higher at 1.2093 to the greenback, or 82.69 U.S. cents, moving back in reach of Wednesday’s 6-year peak at 1.2042.
For the week, the loonie was on track to gain 0.3%. It has climbed more than 5% since the start of the year, the biggest gain among G10 currencies, supported by surging commodity prices and a shift last month to a more hawkish stance by the Bank of Canada.
Still, BoC Governor Tiff Macklem said on Thursday if the currency continues to rise, it could create headwinds for exports and business investment as well as affecting monetary policy.
The U.S. dollar fell against a basket of major currencies, pressured by a recovery in risk appetite across markets after Federal Reserve officials helped calm concerns about a quick policy tightening in response to accelerating U.S. inflation.
Canadian government bond yields were lower across much of a flatter curve, with the 10-year down 2 basis points at 1.549%. On Thursday, it touched its highest intraday in eight weeks at 1.624%.
(Reporting by Fergal Smith; Editing by Nick Zieminski)
Toronto Stock Exchange rises 1.21% to 19,366.69
* The Toronto Stock Exchange‘s TSX rises 1.21 percent to 19,366.69
* Leading the index were SNC-Lavalin Group Inc <SNC.TO>, up 16.0%, Village Farms International Inc, up 9.8%, and Denison Mines Corp, higher by 9.4%.
* Lagging shares were Aurora Cannabis Inc, down 7.2%, Centerra Gold Inc, down 3.8%, and Canadian National Railway Co, lower by 3.7%.
* On the TSX 194 issues rose and 35 fell as a 5.5-to-1 ratio favored advancers. There were 25 new highs and no new lows, with total volume of 225.7 million shares.
* The most heavily traded shares by volume were Enbridge Inc, Manulife Financial Corp and Cenovus Energy Inc.
* The TSX’s energy group rose 3.32 points, or 2.7%, while the financials sector climbed 4.80 points, or 1.3%.
* West Texas Intermediate crude futures rose 2.65%, or $1.69, to $65.51 a barrel. Brent crude rose 2.68%, or $1.8, to $68.85 [O/R]
* The TSX is up 11.1% for the year.
This summary was machine generated May 14 at 21:03 GMT.
U.S., Mexico, Canada to hold ‘robust’ talks on trade deal
The United States, Mexico and Canada will next week hold their first formal talks on their continental trade deal, with particular focus on labor and environmental obligations, the U.S. government said on Friday.
“The ministers will receive updates about work already underway to advance cooperation … and will hold robust discussions about USMCA’s landmark labor and environmental obligations,” the office of U.S. Trade Representative Katherine Tai said in a statement.
The United States is also reviewing tariffs which may be leading to inflation in the country, economic adviser Cecilia Rouse told reporters at the White House on Friday, a move that could affect hundreds of billions of dollars in trade.
The United States, testing provisions in the new deal aimed at strengthening Mexican unions, this week asked Mexico to investigate alleged abuses at a General Motors Co factory.
(Reporting by David Ljunggren; Editing by Hugh Lawson and Jonathan Oatis)
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