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.
A broker in Mumbai, India. Markets have been a bright spot as the economy has weakened, but some fear share prices have become disconnected from the real world. (Shailesh Andrade/Reuters)
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.
300-year recession
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.
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.
A happy Elon Musk, CEO of Tesla, arrives at a European awards ceremony in Berlin on Tuesday. The company’s shares have risen 600 per cent this year. (Hannibal Hanschke/Pool/Reuters)
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:
Personal finance expert Preet Banerjee answers viewer questions about the financial challenges brought on by the COVID-19 pandemic, including saving for school with limited job opportunities and whether or not people should prepare for an economic depression. 3:22
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.
OTTAWA – Statistics Canada says wholesale sales, excluding petroleum, petroleum products, and other hydrocarbons and excluding oilseed and grain, rose 0.4 per cent to $82.7 billion in July.
The increase came as sales in the miscellaneous subsector gained three per cent to reach $10.5 billion in July, helped by strength in the agriculture supplies industry group, which rose 9.2 per cent.
The food, beverage and tobacco subsector added 1.7 per cent to total $15 billion in July.
The personal and household goods subsector fell 2.5 per cent to $12.1 billion.
In volume terms, overall wholesale sales rose 0.5 per cent in July.
Statistics Canada started including oilseed and grain as well as the petroleum and petroleum products subsector as part of wholesale trade last year, but is excluding the data from monthly analysis until there is enough historical data.
This report by The Canadian Press was first published Sept. 13, 2024.
VICTORIA – British Columbia is forecasting a record budget deficit and a rising debt of almost $129 billion less than two weeks before the start of a provincial election campaign where economic stability and future progress are expected to be major issues.
Finance Minister Katrine Conroy, who has announced her retirement and will not seek re-election in the Oct. 19 vote, said Tuesday her final budget update as minister predicts a deficit of $8.9 billion, up $1.1 billion from a forecast she made earlier this year.
Conroy said she acknowledges “challenges” facing B.C., including three consecutive deficit budgets, but expected improved economic growth where the province will start to “turn a corner.”
The $8.9 billion deficit forecast for 2024-2025 is followed by annual deficit projections of $6.7 billion and $6.1 billion in 2026-2027, Conroy said at a news conference outlining the government’s first quarterly financial update.
Conroy said lower corporate income tax and natural resource revenues and the increased cost of fighting wildfires have had some of the largest impacts on the budget.
“I want to acknowledge the economic uncertainties,” she said. “While global inflation is showing signs of easing and we’ve seen cuts to the Bank of Canada interest rates, we know that the challenges are not over.”
Conroy said wildfire response costs are expected to total $886 million this year, more than $650 million higher than originally forecast.
Corporate income tax revenue is forecast to be $638 million lower as a result of federal government updates and natural resource revenues are down $299 million due to lower prices for natural gas, lumber and electricity, she said.
Debt-servicing costs are also forecast to be $344 million higher due to the larger debt balance, the current interest rate and accelerated borrowing to ensure services and capital projects are maintained through the province’s election period, said Conroy.
B.C.’s economic growth is expected to strengthen over the next three years, but the timing of a return to a balanced budget will fall to another minister, said Conroy, who was addressing what likely would be her last news conference as Minister of Finance.
The election is expected to be called on Sept. 21, with the vote set for Oct. 19.
“While we are a strong province, people are facing challenges,” she said. “We have never shied away from taking those challenges head on, because we want to keep British Columbians secure and help them build good lives now and for the long term. With the investments we’re making and the actions we’re taking to support people and build a stronger economy, we’ve started to turn a corner.”
Premier David Eby said before the fiscal forecast was released Tuesday that the New Democrat government remains committed to providing services and supports for people in British Columbia and cuts are not on his agenda.
Eby said people have been hurt by high interest costs and the province is facing budget pressures connected to low resource prices, high wildfire costs and struggling global economies.
The premier said that now is not the time to reduce supports and services for people.
Last month’s year-end report for the 2023-2024 budget saw the province post a budget deficit of $5.035 billion, down from the previous forecast of $5.9 billion.
Eby said he expects government financial priorities to become a major issue during the upcoming election, with the NDP pledging to continue to fund services and the B.C. Conservatives looking to make cuts.
This report by The Canadian Press was first published Sept. 10, 2024.
Note to readers: This is a corrected story. A previous version said the debt would be going up to more than $129 billion. In fact, it will be almost $129 billion.
NANAIMO, B.C. – Former Bank of Canada governor Mark Carney says he’ll be advising the Liberal party to flip some the challenges posed by an increasingly divided and dangerous world into an economic opportunity for Canada.
But he won’t say what his specific advice will be on economic issues that are politically divisive in Canada, like the carbon tax.
He presented his vision for the Liberals’ economic policy at the party’s caucus retreat in Nanaimo, B.C. today, after he agreed to help the party prepare for the next election as chair of a Liberal task force on economic growth.
Carney has been touted as a possible leadership contender to replace Justin Trudeau, who has said he has tried to coax Carney into politics for years.
Carney says if the prime minister asks him to do something he will do it to the best of his ability, but won’t elaborate on whether the new adviser role could lead to him adding his name to a ballot in the next election.
Finance Minister Chrystia Freeland says she has been taking advice from Carney for years, and that his new position won’t infringe on her role.
This report by The Canadian Press was first published Sept. 10, 2024.
