After 15 months of crisis management, Darryl White is gearing up for a boom. Bank of Montreal’s chief executive officer held two days of meetings in mid-June with his 10 top executives – an annual ritual conducted partly by video call this time. With pent up economic activity ready to break loose as vaccination rates rise and lockdown measures lift, the mood among the bank’s top brass coming out of that gathering was “more optimistic than people have been in their careers,” Mr. White says in an interview.

“We’ve never done this before,” he says, about the unusual economic path to a recovery from the pandemic. “We’ve never had the spring coiled so tightly.”

Mr. White now believes a roaring two-year rebound is beginning, with GDP growth estimated to be roughly 6% in Canada and 7% in the United States this year, followed by 4.5% in both countries next year. Some of that is catching up on lost ground from the crisis. Meanwhile, hundreds of billions of dollars of extra deposits have built up on bank balance sheets, waiting for opportunities to be spent.

Consumers are itching to book holidays and dine out, companies are bringing new spending ideas to their boards, and the pipeline for potential mergers and acquisitions is bursting. “I mean, there’s just so much liquidity,” Mr. White says, adding: “I don’t know how you keep a lid on it, frankly.”

Parts of the recovery still look precarious. Credit card spending from consumers and demand from businesses for new loans have so far been slow to pick up, while profit margins from lending continue to be squeezed by low interest rates.

And there are growing concerns about a looming risk of high inflation when spending and borrowing return. Mr. White says inflation isn’t at worrisome levels yet – he predicts it could end this year at 3% and repeat at the same rate next year. But as consumers notice cars and vacations and food getting more expensive, a cycle of rising prices could take hold. “I do think the risk is increasing,” he says.

By far the biggest risk still comes from the novel coronavirus itself, and the potential for a resurgence of infections or another unexpected setback to public health. The linchpin in the rebound is the expectation that vaccines can prevent fourth or fifth waves of COVID-19 cases in Canada, fending off variants of the virus such as the Delta variant first detected in India.

Source: Globe and Mail