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Unrealistic economic cheerleading is no solution to a lingering COVID-19 crisis: Don Pittis – CBC.ca

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4 years ago

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Pessimism does not come naturally to the world of business, which may be why there was so much early enthusiasm for the idea of a V-shaped recovery.

Based on a graphic portrayal of the economy’s initial sharp decline, the V-shape, as opposed to W, U or L, was seen as the most optimistic path.

The concept was that after a steep plunge down to the bottom of the V caused by the novel coronavirus and lockdown, economic activity would rebound right away as everyone went back to their old jobs and resumed their spending.

Even with the wisdom of hindsight, it is not entirely clear that governments could have orchestrated that perfect recovery. Clearly some — including our southern neighbour — could have done a much better job.

Economic chain reaction

As we wait for the latest numbers on Canadian trade and fresh jobs data for both the U.S. and Canada this week, a sharp revival seems ever more unlikely, as a chain reaction of grim events echoes through the Canadian and global economies.

And while Canadian leaders can be congratulated for getting COVID-19 under control and patching some of the worst cracks with bailouts, it is becoming increasingly clear that the outbreak is inflicting longer-term damage — damage we may begin to see in trade figures on Wednesday.

Early evidence of a decline in trade was pointed out by David Parkinson in the Globe and Mail last week, when he drew attention to the fact that revenue ton-miles — a potential proxy for trade — at CN and CP Rail were down 16 per cent and 12 per cent, respectively.

In a globalized economy, no country stands alone. And with the U.S. our biggest trade partner, it is hard not to blame — as U.S. Federal Reserve chair Jerome Powell did last week — the failure of the United States to stop the spreading outbreak of the disease.

The Fed chair warned that the renewed U.S. flareup, now seen moving from Sunbelt states to the Midwest, would continue to be a drag on the economy. While the central bank would “plan for the worst,” Powell said, eventually businesses would reopen.

“But there’s probably going to be a long tail where a large number of people are struggling to get back to work,” he said.

That is one of the reasons economic forecasters are not predicting the same large rebound in jobs for July that we saw in the June data.

But even as Canadian economic growth snapped back in May, regaining almost half its losses, there are increasing signs the second half of the year will be much harder. A predicted second wave of the disease in Canada will not be the only thing putting the brakes on a recovery.

Pandemic led to falling dominoes

The day after Powell’s gloomy outlook, news came that the U.S. economy had contracted by 33 per cent, the biggest reduction on record, making it increasingly clear that the dominoes had started to fall and that Powell’s long tail would apply to more than just jobs.

Just like the viral contagion that began the process, parts of the economy that we see as quite disparate have linkages that lead to transmission in a vicious circle. What we have seen is that government attempts to stem the tide by flooding cash into markets, businesses and housing — and into the pockets of the unemployed — simply cannot fill all the gaps.

Six months ago, back when we thought the novel coronavirus could largely be contained to China, economists were already warning that the severity of its impact would depend on how long the epidemic ― it had yet to be labelled a pandemic — lasted.

Masked Brazilians play dominoes last month in the capital, Brasilia. Economic downturns in countries hard hit by the virus have led to a contagion of reduced global trade. (Adriano Machado/Reuters)

Three months ago, independent real estate analyst Ben Rabidoux suggested house prices would suffer very little if the crisis ended quickly — a time frame he put at less than six months. Meeting that deadline now seems unlikely.

In May, tax historian Shirley Tillotson remarked on how previous crises that governments expected would soon be over had a way of extending or even worsening. And while acknowledging excessive pessimism could make things worse, the U.S. response to the pandemic has been a lesson that unrealistic cheerleading can have a more dire effect.

The end, or the scaling back, of income support programs in the U.S. may be intended to force people back to work. But as Powell implied, those jobs no longer exist.

The list of bankruptcies is long, including in retail, a big employer on both sides of the border. And even if creditor protection allows some of those businesses to resume operations, as DavidsTea announced it would last week, creditors will be out of pocket.

The tea shop’s 18 Canadian stores, downsizing from nearly 200 before the pandemic, will mean jobs will disappear and the rest of the storefronts will be looking for new tenants.

Situation far from hopeless

The purchase by Canadian construction giant Bird Construction of the No. 3 builder, Stuart Olson, may keep its projects alive, but it will almost inevitably lead to a reduction in jobs since most of the cash went to paying off accumulated debt. Stuart Olson and DavidsTea are just two recent examples of the way one thing has led to another during this economic decline.

A fall in oil exploration, a decline in immigration and perhaps worse — the danger of growing political divisions in the U.S. — will compound themselves into damage to other parts of the economy.

In Canada, it seems outrageous that the WE Charity controversy has diverted so much focus away from the essential task of developing long-term strategies to rebuild a broken economy.

But the problem is far from hopeless. Before the pandemic, full employment and, in many sectors, an output glut were challenges to new businesses and new growth.

Wiser governments around the world are now setting aside political squabbling and — while temporarily shoring up the economy — are devising strategies to employ unused economic capacity as the raw material for the next recovery.

Follow Don on Twitter @don_pittis

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Economy

B.C.’s debt and deficit forecast to rise as the provincial election nears

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2 days ago

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September 10, 2024

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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.

The Canadian Press. All rights reserved.

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Economy

Mark Carney mum on carbon-tax advice, future in politics at Liberal retreat

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2 days ago

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September 10, 2024

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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.

The Canadian Press. All rights reserved.

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Economy

Nova Scotia bill would kick-start offshore wind industry without approval from Ottawa

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2 days ago

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September 10, 2024

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HALIFAX – The Nova Scotia government has introduced a bill that would kick-start the province’s offshore wind industry without federal approval.

Natural Resources Minister Tory Rushton says amendments within a new omnibus bill introduced today will help ensure Nova Scotia meets its goal of launching a first call for offshore wind bids next year.

The province wants to offer project licences by 2030 to develop a total of five gigawatts of power from offshore wind.

Rushton says normally the province would wait for the federal government to adopt legislation establishing a wind industry off Canada’s East Coast, but that process has been “progressing slowly.”

Federal legislation that would enable the development of offshore wind farms in Nova Scotia and Newfoundland and Labrador has passed through the first and second reading in the Senate, and is currently under consideration in committee.

Rushton says the Nova Scotia bill mirrors the federal legislation and would prevent the province’s offshore wind industry from being held up in Ottawa.

This report by The Canadian Press was first published Sept. 10, 2024.

The Canadian Press. All rights reserved.

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