you don’t want to waste a crisis’: economists ponder playbook to restart and strengthen economy
‘You don’t want to waste a crisis’: Economists ponder playbook to restart and strengthen economy
Investments in infrastructure like 5G and public transportation will allow Canada to emerge stronger from the crisis
Gabriel Friedman Financial Post April 17, 2020
As the spread of COVID-19 creates the largest monthly job losses in Canada in more than 40 years, disrupts business routines and infects thousands of people across the country, some analysts are wondering what a careful restart of the economy would look like.
On Friday, officials from British Columbia government said they have managed to “flatten the curve” and have seen a reduction in coronavirus cases, which has encouraged them to consider easing some restrictions next month if the number of cases continue to drop.
Provincial health officer Dr. Bonnie Henry said B.C. is experiencing a slowing of the rate of infections but warned that the “new normal” will include continued public health restrictions for at least the next several months.
As the conditions around the country remain in flux, economists and policymakers say it is imperative to start thinking about investments that will allow Canada to emerge stronger from the crisis.
“You don’t want to waste a crisis,” said Benjamin Tal, deputy chief economist at CIBC World Markets Inc. “You want to use that crisis to change things, to accelerate trends that were there already and build on the fact that there is a social demand for this kind of change.”
CIBC forecasts Canada’s GDP to contract 6.9 per cent this year, before rebounding 6.8 per cent in 2021.
For the moment, Tal said the government needs to maintain its discipline about social distancing and other measures that slow the spread of coronavirus because a second wave would be “disastrous.” That means “essential” workers will be critical in the short term to growing the labour force.
“I see their market power rising, and I think that’s a good thing,” said Tal. “We need to pay them more to retain and attract them.”
But he also suggested that with the government borrowing hundreds of billions of dollars and amassing debt that younger generations will be paying back for decades, there needs to be a concrete plan to invest the money wisely so the gains are more than short-term.
Tal called for investment in what he termed “the infrastructure of the 21st century,” not necessarily roads and tunnels, but technology such as 5G networks and the associated scientific research needed to advance such projects.
Investment in public transportation — almost anathema to think about during a time of social distancing — could help lower real estate costs in cities such as Toronto and Vancouver where young people are priced out, he said.
“After 9/11, people said nobody would be flying, and we flew,” said Tal. “I would be careful not to apply what we feel now to five years now.”
The C.D. Howe Institute Crisis Working Group also released a report on Friday, calling for a “playbook” on how Canada returns to normal business conditions, cautioning that uncertainty around the path to a recovery could be harmful by itself.
While the group commended the speed of the federal government’s response to the unfolding pandemic, it also urged a continual review of wage subsidy or small business loan programs, so that the implementation is smooth. The report also called on the federal and provincial governments to create a framework, with clearly defined metrics, that govern when various social distancing and other measures can ease.
“The key here is transparency around the plan,” said Grant Bishop, associate director of research at C.D. Howe.
His organization’s working group also cited investment in telecommunications as critical, noting that demands on existing infrastructure have surged and are likely to continue increasing in the future.
Some of the working group’s other recommendations were aimed at addressing “the confusing rules about how a company’s subsidiaries should assign revenues to determine whether the company meets the 30 per cent revenue reduction requirement and so qualifies for the wage subsidy.”
The government should also create bespoke revival strategies for hard-hit sectors such as airlines, tourism, petroleum producers and oil field services companies.
“While urgency has motivated large spending commitments, government should keep its eye on its objective to ‘turn off the taps’ on the temporary measures that have been created to confront this emergency,” the group of analysts and economists wrote in the report.
On Friday, Prime Minister Justin Trudeau continued to pour cold water on prospects of a quick reopening either of the Canadian economy or of its borders with its main trading partner down south.
“We do not feel that reopening the border any time soon is likely,” the Prime Minister told reporters in his daily briefing, noting that Canadian officials were in constant touch with their American counterparts about the issue.
His strategy is in contrast to his U.S. counterpart President Donald Trump who on Thursday outlined a framework to reopen U.S. states in a staggered, three-stage process. But the plan left the decision largely up to state governors.