Conference board urges restraint

·4 min read

When it comes to the state of Canada’s post-pandemic economy, it’s deficits as far as the eye can see — provincially, municipally and nationally.

The price tag for numerous programs implemented by all levels of government to support the economy since last spring continues to rise. Federally, it’s expected to soar well above the "uncomfortable" $200-billion mark; and in Manitoba, it’s around $1.6 billion.

Leading economists suggest those pummelling deficits will cause fewer investments in health care, education and social-security infrastructure. And as funds are spent instead on paying down debt loads, ramifications could include a lower value for the loonie, fewer employment opportunities and decreased federal transfers to the provinces.

That’s why the Conference Board of Canada’s two-year forecast, provided to the Free Press this week, is urging governments across Canada to begin looking at fiscal restraints and measures to boost revenues once the pandemic is over.

"It’s mind-boggling debt that just isn’t sustainable," said Pedro Antunes, chief economist at the board, in an interview on Wednesday. He expects COVID-19 to make a "permanent hit" to Canada’s financial potential.

Antunes believes a fiscal anchor is a much-needed necessity from Ottawa. He’s also among many economists who indicated higher taxes is likely an inevitability to help balance Canada’s books.

"We certainly need to start being prudent about spending on additional stimulus," he said. "Let’s wait and see if the economy isn’t able to kick up and get going on its own first."

However, Prime Minister Justin Trudeau continues to pledge that his government will not raise taxes on Canadians — at least not for now.

"We will not impose more on Canadians," Trudeau told reporters last week. "We know that we must restart the economy. It’s not time to take away from people, it’s time to offer opportunities for people to go through this and rebuild stronger."

According to the board’s snapshot, Canada’s economy will expand by 5.8 per cent in 2021 and four per cent in 2022 because of the initially "sluggish" rollout of vaccines. Once that’s ramped up, it could lead to higher expansion.

In Manitoba, the economy is estimated to rebound and expand by 4.3 per cent in 2021, following a four per cent decline in 2020. Although, that decline has been less severe in Manitoba than in most other regions of the country, the report says, "thanks in part to a more diversified economy which is less reliant on energy than those of the other Prairie provinces."

Financial support during COVID-19 was crucial to ensuring the economy didn’t collapse. "And the ongoing drop in the unemployment rate shows just how important the assistance has been," the report added.

"But the problem now is that we’ve dug ourselves deep in deficits," said Antunes. "We keep hearing that it’s manageable because it’s not like the ’90s and our interest levels are low. But the debt-to-GDP ratio will be far too uncomfortably high, no matter what."

One of the key factors behind the economic recovery in the short-term will be a rebound in household spending, the board believes. Last year, spending collapsed by 6.1 per cent due to pandemic-driven restrictions on activity and surging unemployment.

"That being said, because of the support measures from Ottawa, household income held up well over the course of the pandemic," said Antunes. "In fact, it created a unique phenomenon: a savings surge."

New data shows household savings rose from 1.4 per cent in 2019 to nearly 15 per cent in 2020. That’s the highest savings rate in 35 years.

The Conference board believes those savings will need to be turned into consumer spending on services to play an important part in supporting a strong economic rebound, but a full recovery to pre-pandemic levels of spending is not expected to be reached until 2022.

"It’s a slow start with the rebound and it all depends on vaccine rollouts, along with managing COVID variants," said Antunes. "But to me, our forecasts are far more promising than previously thought and I think people are ready to go out and start spending on the economy again."

temur.durrani@freepress.mb.ca

Twitter: @temurdur

Temur Durrani, Local Journalism Initiative Reporter, Winnipeg Free Press