Author

The year 2020 will be etched into history books forever as the year of the global coronavirus pandemic. In fewer than nine months, notwithstanding enormous containment efforts, this virus has infected almost 26 million people across more than 200 countries and territories and caused 860,000 deaths. In Canada, we have seen 130,000 cases and more than 9,000 deaths. One year ago, federal political parties in Canada were putting finishing touches to policy platforms for a fall election. The platforms were based on assumptions of continuous economic growth, low unemployment, and modest budgetary deficits. A key policy priority for the Liberal and Conservative parties was to make life more affordable. Like the famous song from the Eagles rock band, life had the “peaceful easy feeling." In the song Beautiful Boy, John Lennon wrote: “life is what happens to you while you’re busy making other plans." Turns out, the Lennon song gave better advice for policy-making. Mother nature (the novel coronavirus) just reminded us that our health and economic systems are tied to the forces of nature (biology, chemistry and physics). What are the economic impacts of COVID-19? Enormous. Records are being set. Not good ones. A global economic recession. Canada’s worst economic outcomes since the 1930s. Joseph Stiglitz, a Nobel Prize-winning economist, said: “COVID-19 is not an equal opportunity virus." Impacts are tragic for people with poor health and economically devasting for people whose work involves daily contact with people, most often people with low wages. Thanks to Statistics Canada we have some hard data on early impacts. The pain is real and deep. Real GDP fell 11.5 per cent in the second quarter, following a 2.1 per cent decline in the first quarter. All major components of demand are down sharply—household spending, business investment and trade. By comparison, there were also record declines in other countries U.S. (-9.1 per cent), U.K. (-20.4 per cent), France (-13.8 per cent), Italy (-12.4 per cent). Monthly data show steep output declines during the lockdown (March and April) and a rebound in May and June. Both goods and service sectors are down 10 per cent in June from February levels. That is a big gap. Some sectors have been crushed—oil and gas, transportation, accommodation and food services. The economic scars in these sectors will be deep and lasting. Similar to the trajectory in output, there have been unprecedented impacts for workers. The unemployment rate went from 5.6 per cent in February to a record high of 13.7 per cent in May and has fallen to 10.2 per cent in August. Notwithstanding the rebound over the summer, employment levels remain 1.1 million below February 2020 (about the population of a major city like Ottawa) and virtually identical to the level of employment when the Liberals took over in 2015. While gaps are evolving, labour force data highlight concerns by commentators that COVID-19 impacts are exacerbating fault lines for many groups including women, visible minorities, Indigenous people, youth and low-wage earners. In the absence of a vaccine, governments around the world had no choice but to lock down the economy to slow the spread of the virus. Global growth is expected to decline about five per cent in 2020; about seven per cent in Canada. For Canadians, that is more than twice the decline in output in 2009—the global financial crisis. GDP is down almost $350-billion (annualized) from the fourth quarter of 2019 ($2.3-trillion). The fiscal costs are enormous. According to the economic and fiscal snapshot tabled in Parliament in July, budgetary revenues will fall close to $100-billion in 2020-21. Deficit-financed fiscal supports for households and businesses will be in the $250-billion range. Unthinkable—a $350-billion federal budgetary deficit in a $2-trillion economy. Do the fiscal costs outweigh the benefits? Is the debt build-up fair to future generations? Time will tell, but I say yes. The estimated statistical value of life—a cold-hearted estimate of how much people are willing to pay to reduce risk of death—is about $10-million per person. You do the math. Canada is on its way to lose 10,000 people ($100-billion). Without an economic lockdown, it is not hard to argue (with or without epidemiological models) that the number could have been many times higher. Thousands of lives have been saved. People will argue, perhaps correctly, that fiscal supports could have been better targeted. Remember, government told us (wealthy and less wealthy) to stay home. The economy was in free fall. At peak (April), 5.5 million Canadians were directly affected. In an economy already loaded with debt, households and businesses stayed afloat. Credit card delinquencies and business bankruptcies remained flat in the second quarter. What are the prospects for economic recovery? Let’s be frank, nobody can plan with confidence. We are living with radical uncertainty. Economic models are largely useless as this is not a familiar shock to the business cycle. Economic outcomes depend on the evolution of the virus and prospects for global vaccination. Current rebounds in economic data should not be conflated with recovery. Real recovery lies ahead. Economic and fiscal plans must be tied to economic scenarios with unmeasurable probabilities. Finance ministers around the world will be under pressure to change the way they prepare budgets. In a world of many scenarios, I put my money on slow bumpy growth—weaker than the recovery after the 2008 global financial crisis. Risks are getting riskier. Debts are building in developing countries. The global health crisis could yet turn into a global financial crisis. Forecasters suggest Canada will not get back to pre-crisis output levels until 2022. There are some potential game changers for outcomes—a vaccine; and a resurgence in international leadership and cooperation. Closer to home, we need a Canadian economic recovery plan that will boost confidence in the future with strategic and measured investments in long-term challenges and adjustment support for Canadians and businesses left behind by the coronavirus. Kevin Page is the founding president and CEO of the Institute of Fiscal Studies and Democracy at the University of Ottawa and the former parliamentary budget officer. The Hill Times

COVID-19: economic impacts and prospects

Inside The Hill Times

Columnists

Hill Times Publishing

COVID-19: economic impacts and prospects

Become a Political Insider

Inside The Hill Times

Columnists

Hill Times Publishing