Chief economists from Canada’s big banks expect the economy to rebound this year, but say failing to control COVID-19 or get vaccines into arms could upend that recovery. Speaking at an annual breakfast hosted virtually by the Economic Club of Canada, the economists expressed cautious optimism about the months ahead.
Doug Porter, chief economist at BMO Financial Group, says his bank believes every economy will see a substantial improvement over the next year as long as the virus doesn’t continue to accelerate. BMO is expecting the global economy to post a 5.5% rebound this year, followed by a 4% growth rate next year.
In the midst of a deep economic crisis, Canadians became significantly richer from massive income support payments, surging home prices and stock market gains. Household net worth rose by more than $600 billion (US$469 billion) in the first six months of the pandemic, according to Statistics Canada data.
“During the first year of a recession there is just no precedent for a positive wealth effect,” said Stefane Marion, chief economist at National Bank of Canada in Montreal. “This is crucial in helping sustain the resilience of the Canadian economy.”
In the early days of the pandemic, Prime Minister Justin Trudeau’s government acted quickly to implement income and credit support programs to keep businesses and households afloat. As a result, average disposable income increased by 12% during the pandemic, according to Marion.
This was complemented by the Bank of Canada cutting interest rates to record lows, and committing to keeping them there for years to support the recovery. The coordinated action has resulted in higher savings rates and lower debt-to-income levels for the average Canadian.
Generous fiscal and monetary support has also contributed to rising equity prices and a booming housing market as consumers take advantage of cheap money policies. “With this type of money going to households we avoided a wave of insolvencies and defaults that has characterized every recession in Canadian history,” Marion said.
Avery Shenfeld, chief economist at CIBC, said COVID-19 vaccines will be key to the recovery because once more people get a shot they will be willing to spend money on things they have been prevented from doing over the last year. Shenfeld says the vaccines will help unleash cash Canadians have avoided spending as the pandemic closed down most entertainment and hospitality venues and kept people from travelling.
Economists acknowledge there is a cohort of consumers that have been left out. Lower-waged workers, particularly in service industries where jobs losses are more pronounced, have been hardest hit and benefited least from the pick up in wealth. “If you look at workers under $800 a week, employment for them is still below pre-crisis levels,” said Craig Wright, chief economist at Royal Bank of Canada, adding that employment for those making above $800 a week has completely recovered. “There’s a real divergence there, and of course that’s going to leave some behind,” Wright said. “That’s a challenge for policy makers as well as the businesses as we move forward.”
Source: Toronto Star