Saturday, April 13, 2024

On the road to recovery: What does economic recovery look like?

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Tony Vaughn
Tony Vaughn
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Stimulating consumption is one of the most important ways a government can contribute to economic growth. North American households have paid off an impressive portion of their debt since the spring of 2020 and have been able to save at unprecedented levels. How consumers spend this accumulated money will have a direct impact on how the Canadian economy recovers.

Since the beginning of 2021, studies have followed and likened to each other: Canadians’ financial situation appears to have improved. Excluding real estate obligations, Canadian household public debt has shrunk over the past year.

Not being able to afford large expenses for more than a year, such as a trip or vacations that are more expensive than a visit to the hardware store, means that “many people have created a great deal of leeway on top of current expenses,” explains Helen Begin, chief economist at Desjardins Papers. Finance. Confirmed in an interview with duty.

The result: While mortgage debt exploded by $99.6 billion, with housing prices rising, non-mortgage debt fell to a record $20.6 billion from March 2020 to January 2021, Statistics Canada noted the end of August. Credit card debt fell by a record $16.6 billion.

The Desjardins economist therefore sees the stars in line with a sustained recovery in household spending over the coming months. One condition: that the consumer confidence index remains high. And that the service sector is more accessible to them than it has been in recent months.

Avoid leakage of expenses

For the stimulus to consume has the maximum beneficial effect on the economy, the expenditure must be made at home, the master adds.I Started.

“The savings are there, but consumers need to maintain a good level of confidence. If they stay constrained in their spending, they will end up spending less money.”

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Desjardins estimates that many consumers are willing to wait until the end of 2022 to spend again in sectors such as travel and some more expensive leisure activities.

The role of local buying has been crucial to the survival of many Quebec merchants in 2020. This is a practice that should not be abandoned now as we are thinking about drawing conclusions from the past few months to rebuild a sector – retail sales. Totally upset for a year and a half.

Many people have found a lot of leeway in the current spending side. Credit card balance has decreased dramatically, in Quebec as in Canada.

Blue Basket was set up very quickly by Legault’s government at the height of the pandemic in order to create a catalog of products with strong content in Quebec. The site is preparing to launch a new offensive in the coming months to continue boosting domestic consumption after the outbreak of the epidemic. “It’s a movement that will continue to exist as long as we keep talking about it,” believes Alain Dumas, managing director of the movement. “You just need to educate consumers about the impact of their purchases on the economy.”

The restrictions imposed by governments since March 2020 to combat COVID-19 and, above all, gradual waves of dismantling have led to a major shift in the Canadian economy: consumers have flocked to merchants whose doors were open. The services, tourism and leisure sector are still slow to restart.

Alain Dumas adds that companies taking advantage of the growing popularity of convenience stores can also favor local suppliers to aid in the recovery. “Merchants also have a role in local buying; business-to-business trade is at least as important as business-to-consumer trade.”

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Two years to get over it

According to the Canadian Federation of Independent Business (CFIB), small and medium-sized businesses are crushed by debt incurred to weather the crisis.

To pay off everything, “it will take two years for companies in the recovery process to return to a normal level of activity,” said François Vincent, vice president in charge of Quebec within the Canadian organization.

The vice president of CFIB made the statement in late August when he presented the results of a survey of small businesses across the country about their financial health. In short: the shift towards local buying has been beneficial to them. According to CFIB, 37% of Canadian SMEs believe that domestic consumption has been a “survival factor” for them in recent months.

“Since the beginning of the pandemic, we have made a lot of effort to convince citizens that they can participate in saving their local businesses that have been hit hard by economic restrictions,” says François Vincent.

CFIB wants to continue this habit. It also asks the government to continue to stimulate local trade, first by setting local buying thresholds in its supply, but also by helping local retailers find buyers, in person or online.

“Quebec has been very active in local procurement, through awareness campaigns and its support for the creation of the Blue Basket. The Quebec government is very interested in ensuring that local procurement is one of the priorities of its economic recovery plan,” Vincent said.

To save or not to save?

One question that economists don’t yet have a sure answer to: Will variable delta and potential spikes in the COVID-19 virus affect Canadians’ spending? Already, the evolution of Canadian GDP in the fourth quarter appears to be more uncertain than it did in June, as a result of the fourth wave that we don’t know if it will last until 2022. Cautious, if not outright concerned, Canadian households can continue to save Money set aside at least until 2023, at three times the rate before the pandemic. “If we are wrong and Canadians show more interest in digging into their savings, consumption growth could be 7-8% in 2021 and 2022, two to three percentage points higher than normal,” TD Bank economists wrote earlier this year.

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The Bank of Canada is also cautious in its outlook. Its monetary policy is based on a very gradual rejection of the $200 billion jackpot that has been set aside by Canadian consumers in recent months. This summer, it cut projected national GDP growth from 6.5% to 6% if the pandemic continues.

Consumers, for example, can be patient before spending big on vacation plans. But no one would go so far as to imagine a further decrease in their level of spending. Rather, it is the nature of these expenses that will vary depending on the health and economic conditions of the place.

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