Justin Trudeau – Prime Minister of Canada, CC BY 3.0 via Wikimedia Commons
In the early days of the Covid-19 pandemic, as cases and the death toll mounted in Canada, Justin Trudeau and his finance minister, Bill Morneau, sought to assure nervous businesses and households the government had the tools to tackle the crisis.
Now, after racking up a projected C$343bn deficit to stabilise the economy, the acrimonious exit of Mr Morneau from cabinet has spawned a new level of uncertainty at a critical juncture in Canada’s recovery — one that has pitted Mr Trudeau’s ambitious plans for a post-pandemic stimulus barrage against the spectre of unending deficits.
Hildenbrand / MSC, CC BY 3.0 DE via Wikimedia Commons
Justin Trudeau has named deputy prime minister Chrystia Freeland as Canada’s new finance minister, putting her in charge of steering the country through its economic recovery from the coronavirus pandemic.
Ms Freeland, a former journalist with the Financial Times who won praise for her handling of trade talks with Washington as foreign affairs minister during the Liberal government’s first term, is the first woman to serve as federal finance minister. Bill Morneau abruptly resigned from the post a day earlier.
In the cabinet shuffle to appoint Ms Freeland, she will keep her current job as deputy prime minister while giving up her role as minister for intergovernmental affairs to Dominic LeBlanc.
In her new job Ms Freeland would oversee the rebuilding of Canada’s economy after the Covid-19 crisis blew a hole in the country’s finances and sent the economy into free fall.
In late March, as COVID-19’s twin invasion of the world’s population and the global economy worsened, leaders from the G20, an informal group of 19 countries and the European Union, gathered – virtually, of course – to commit to a united front against the novel coronavirus.
Their pledge to do “whatever it takes” to overcome the crisis became the war cry of public health officials, finance ministers and central bankers. But trillions of dollars in emergency spending later, it’s still not clear that “whatever it takes” will be enough to pull the global economy out of its tailspin.
The viral outbreak and what some are calling the Great Lockdown meant to curb its spread have delivered an unprecedented shock to the economy and people’s savings. And it comes at a time when millions of Canadians are in their prime earning years ahead of retirement and many millions more retirees were trying to max out their investments.
For millions of Canadians, home has become a refuge in the battle to slow the spread of Covid-19. But the country is also pinning its hopes on residential property being the lifeline it was in the wake of the 2008 financial crisis, when a debt-fuelled housing boom became a driving force of the Canadian economy.
Canadian policymakers no doubt hope previous examples of the market’s resilience play out once more.
From the moment the world went into pandemic lockdown officials have struggled to stay on top of the fast-moving crisis, both in terms of halting the spread of COVID-19 through social distancing and lockdown measures, as well as understanding and mitigating the severe shock to the economy and peoples’ lives. With governments, businesses and health experts flying blind, timely data has never been more vital.
As it turns out, one surprising solution may come down to our fat fingers.
With Canada’s economy facing its deepest recession since the second world war, the government has turned to a Bank of Canada veteran who helped steer the country through the 2008 financial crisis to navigate the pandemic as its new central bank chief.
On Friday Bill Morneau, Canada’s finance minister, announced Tiff Macklem, the former senior deputy governor, will replace Stephen Poloz, the Bank of Canada’s current boss, when his seven-year term ends on June 2.
Mr Macklem, 59, is a veteran of the bank who began his career there in 1984. As the number two to former governor Mark Carney, he played a key role in the bank’s response to the global financial crisis.
(Source: Michal Osmenda from Brussels, Belgium – Wikimedia)
In every economic crisis over the last century, people have ultimately turned to the world of medicine to help make sense of the fear and uncertainty around them. In the 1930s, political cartoons showed U.S. president Franklin D. Roosevelt as a doctor tending to an ailing Uncle Sam, whose bandages carried words like “banking” and “depression.” When the 1990s currency crisis in southeast Asia threatened to infect the rest of the world and trigger a global meltdown, economists and investors took to calling it the “Asian flu.” And in 2008, as America’s economy was felled by the financial crisis, then president Barack Obama urged lawmakers to “provide a blood infusion” to “make sure that the patient is stabilized.”
Never has the metaphor of an economy on life support been more appropriate than for the twin health and economic crises the entire world now faces. Canada, like nearly every other nation on the planet, has put its economy into an induced coma as it attempts to fight off the invading COVID-19 virus. Offices, factories, stores and restaurants are closed and workers have been ordered to stay home, many without paycheques, some unsure whether their jobs will still exist when the crisis abates.
When an oil market war broke out between Russia and Saudi Arabia on March 8, it triggered the worst single-day price collapse since the early 1990s. As petroleum-producing nations, including Canada, have grappled with the fallout the price plunge has drawn comparisons to the oil routs that occurred in 2008, during the Great Financial Crisis, and in 2014 when markets finally caught up with America’s shale boom.
It’s tempting to view all three downturns as separate episodes, but everything that’s happened since 2008 has been the back end of a boom that more or less began in 1998. That was when oil prices finally bottomed out after crashing in 1980 and begun their epic climb.
I created the following chart a few years ago for a story for Maclean’s, and I’ve kept updating it since. (I’ll continue to do so on this page.)
It tracks what happened after that 1980 oil bust, overlaid with the price of crude since the 2008 peak, all adjusted for inflation.
(Updated April 20)
This is by no means a forecast, but it does provide some perspective on what we’re seeing now. As painful as this latest bout of low prices is for Canada’s oil producing regions—which layers on top of the economic trauma wrought by the Covid-19 shutdown—the path oil took after the 1980s bust shows further declines in the future would not be unprecedented. If this downturn lasts as long as the rout after 1980, that would entail another seven years of slumping prices. Even if OPEC and Russia reach a truce, there is little on the horizon to suggest an impending reversal.
Having said that, it would also be unprecedented if the price of oil doesn’t eventually rise again. The chart below comes from a December outlook report by Stifel, a U.S. investment bank, and it tracks the long term growth rate of inflation-adjusted commodities since 1795. The boom and bust cycle that every commodity producing nation is familiar with is on display. As is the long-run cycle of populism, strife and conflict. With the emergency break pulled on the economy and a global recession of unknown depth and duration now unfolding, there’s little reason not to expect an era of domestic and international tension will follow.
The Bank of Canada has cut interest rates for the second time this month, slashing its benchmark rate by another 0.5 percentage points to 0.75 per cent in an emergency move to help the country’s economy grapple with a double hit from the coronavirus outbreak and plunging oil prices.
The move was part of a series of dramatic steps taken by Ottawa on Friday as a growing number of economists warn a recession for the country seems inevitable.
It’s become an all-too familiar image from the coronavirus scare of 2020—aisles of empty store shelves bereft of products like hand sanitizer, cans of soup and face masks. Oh yes, and toilet paper.
It’s that last item that has struck many as most puzzling. The symptoms of Covid-19, a respiratory illness, don’t suggest a need for vast quantities of toilet paper, while toilet paper manufacturers themselves say there have been no disruptions to their supply chains. So why has panicked buying and hoarding been so widespread, not just in Canada but in every country impacted by the virus?
