Hey there, time traveller!
This article was published 11/6/2020 (463 days ago), so information in it may no longer be current.
AS the Manitoba government continues to move us into "Phase 2" of reopening our businesses, schools and retail outlets, we are still far from being in the clear. In large part, this is due to what is happening south of the border — as the saying goes, when the United States sneezes, Canada catches a cold.
Disconcerting numbers regarding the American economy are now surfacing. Within the past two months, 36 million Americans became unemployed. Clothing and apparel stores have lost close to 90 per cent of their sales during this same time period, and industrial production has declined by the most in more than a century, even factoring in the Great Depression.
Jerome Powell, chair of the U.S. Federal Reserve, which oversees the American banking system and monetary policy, was quoted in the New York Times that all job gains made in the U.S. over the past decade were erased in two months. Particularly hard-hit were African-Americans and low-income households. Of great concern was his caution that "long and deep recessions" can cause a "lasting damage to the productive capacity of the economy."
A significant problem is that long-term unemployment easily disconnects people from social networks and prospects for later re-employment. This is especially the case with young people. Another problem is that small-business owners, having built up their enterprises over many years and now finding themselves without government supports, face permanent closures.
The U.S. Congress, in an unusually bipartisan response, approved US$2.9 trillion in emergency spending. Yet, as Powell observed, this is only the start, and building a bridge requires going more than halfway across the river. His concern is that those in Congress, particularly Republicans, are showing concerns about public spending rather than expanding the necessary spending for recovery.
Mitch McConnell, the Republican Senate majority leader, told the press, "We need to be smart and we need to be safe, and we have to find the middle ground." Regarding more emergency spending, he is taking a wait-and-see approach.
Thankfully, compared to the U.S., the Canadian federal government’s response has been more coherent, including large-scale federal supports for the unemployed, students, businesses, charities and others. On May 27, The Canadian Press reported this had totalled $40.33 billion through the Canada Emergency Response Benefit for 8.2 million Canadians, and $5.7 billion had been channelled through the wage subsidy program.
The projected Canadian deficit — that is, the extent to which expenditures exceed revenues in the fiscal year — is quickly climbing. On March 27, it was reported to be $112.7 billion, and two months later has more than doubled, to an estimated $260 billion according to parliamentary budget officer Yves Giroux. And, of course, deficits add to the Canadian debt, which was more than $1 trillion one year ago.
Looking to the future, there are two scenarios — one happy and one not so much. The more positive scenario is that markets bounce back quickly, like the letter "V," and interest rates remain under one per cent. Compared to the mid-1990s, when finance minister Paul Martin instituted severe spending cutbacks and the national debt-to-GDP ratio was more than double what it is today, we are in a better position to deal with the downturn.
The unhappy scenario is that the businesses and markets recover slowly, more like an elongated "L" shape, and that recurring waves of the pandemic put us back into lockdown. We have to ask, if interest rates increase, will debt skyrocket? Will we become like Italy? Like Greece?
In the meantime, the provinces add another layer of uncertainty to Canada’s financial outlook, as each takes on its own added debt. In Manitoba, Premier Brian Pallister claimed we were heading to a $5-billion deficit, while The Canadian Press was reporting that RBC and others were pegging it at $1.5 billion. Regardless of what the actual number turns out to be, this is a significant setback for a province of just over one million people.
Manitobans expect many changes are coming — a Probe Research poll released to the Free Press, which surveyed 800 Manitobans in late April, revealed that close to three-quarters (72 per cent) of Manitobans believe the pandemic will do permanent damage to our economy.
No doubt, we need to support each other, and the recent efforts by the provincial and federal governments are warranted. The bottom line: let’s hope for the best while planning for the worst.
Christopher Adams is an adjunct professor and political scientist based at St. Paul’s College.