2020 Economic Outlook: Challenges and Stimulus
Prime Minister Justin Trudeau’s 2019 budget laid the foundation for Canada’s economic recovery, but challenges remain as growth slowed in late 2020. The central bank, Bank of Canada under Governor Poloz, has been closely monitoring economic indicators such as job creation, business investment, and consumer confidence. The momentum observed during Prime Minister Trudeau’s first term—which saw over one million jobs added—is now faltering.
The Central Bank’s Role
In October 2020, the Bank of Canada intervened by prompting Finance Minister Bill Morneau to consider fiscal stimulus. However, the central bank itself has been actively supporting the economy. Governor Poloz emphasized that while the central bank has historically played a significant role, the time has come for other measures to complement its efforts.
Fiscal Policy and the Economy
Morneau’s proposed income-tax cut could alleviate some pressure on the central bank but may only have a modest impact on growth. Simultaneously, reduced spending in Ontario and Alberta is offset by federal stimulus, which may explain weaker consumer confidence observed through the central bank’s indicators. The parliamentary budget officer cautions that debt reduction as a percentage of GDP will be challenging to achieve without further fiscal action.
The Road Ahead
De-regulation proposed earlier could alleviate regulatory burdens, potentially boosting business investment and trade. While the federal government hasn’t acted decisively on these fronts, Ryan Greer of the Business Council notes that any serious strides in this area would be transformative. The International Monetary Fund estimates significant economic benefits from de-regulation, suggesting a ‘free money’ opportunity that could be financed with political capital rather than increased debt.
In conclusion, Canada faces challenges that require coordinated efforts from both the central bank and fiscal authorities. The potential for revitalization through strategic policy changes, including de-regulation, holds promise but requires swift action to capitalize on opportunities like free economic benefits.