Poloz sees parts of Canadian economy beginning to restart in 'late May'

Canada's economy was well prepared for the shock of the coronavirus and will likely recover faster than those of comparable countries, according to the governor of the Bank of Canada.

But Bank of Canada governor tells MPs full recovery could take a year under 'best-case' scenario

Bank of Canada Governor Stephen Poloz told a House of Commons committee that Canada's economy has solid fundamentals and is poised to make a strong recovery once the global economic shutdown is over. (Blair Gable/Reuters)

Canada's economy was well prepared for the shock of the coronavirus and will likely recover faster than those of comparable countries, according to the governor of the Bank of Canada. 

But even with strong economic fundamentals and a robust program of economic support, Stephen Poloz said that in a best-case scenario it would take the economy a year to regain its former health once the global economy begins to reopen, while a worst-case scenario could deliver deflation and debt defaults. 

When the economy does start to grow again, it won't be felt equally in all provinces, Poloz said, with resources-based regional export economies awaiting the rest of the world's economies to regain enough strength to start buying Canadian commodities again. 

Poloz made the remarks before the House of Commons finance committee Thursday as he took questions on the government's response to COVID-19.

Liberal MP Sean Fraser asked if he felt the fiscal measures — such as the Canada emergency response benefit (CERB) and the CRA salary subsidy — would help the economy recover faster than after past recessions and more quickly than other comparable economies around the world. 

"Yes I have quite a lot of confidence in that," Poloz said during the virtual meeting.

Poloz explained that both the CERB and the CRA subsidy are "elastic" measures because they are not tied to a predetermined budget but rather increase and decrease depending on how many claims are made. 

WATCH | Poloz explains the best-case scenario for economic recovery:

Poloz explains the best case scenario for an economic recovery

3 years ago
Duration 1:33
Bank of Canada Stephen Poloz spoke with MPs on the Commons Finance committee on Thursday

He said those programs help to put a floor under people as the economy sinks and then turns into the foundation for the recovery, ensuring workers are better poised to rejoin the economy once it fully reopens. 

Poloz also said part of his optimism is because Canada's balance sheet was in good shape heading into the crisis; including a low debt-to-GDP ratio compared to other countries. 

"We started this whole episode with our economy operating [at] full employment, at capacity and inflation on target, which is not something that was shared by many other countries," he said.

"It's like a person who is healthy and fit, has a better chance of shaking off the COVID-19 virus, so does a healthy, fit economy have more resilience as we go forward."

Poloz said that while the Bank of Canada usually predicts for how the economy will grow in the coming months, the uncertainty of the pandemic and how it will shake out means that he can only provide best- and worst-case scenarios.

"It's important for us to bear in mind that this is a temporary thing," Poloz said. "This is not an open-ended situation. Our scenario, that we describe as our 'best case' given where we are today, would have us looking at various places in the economy where they begin to restart sometime in late May probably."

Slow, uneven restart

He said that the economy, in this best-case scenario, would start slowly, with many people perhaps still working from home and businesses and services opening up in stages. 

"The economy should begin restarting before the third quarter starts, and for sure would be doing so in the third quarter," he said. "That means we are going to get a 'V' shaped trajectory, so down sharply, then of course back up but not all the way."

Poloz said Canada's economy, in this scenario, would initially bounce about halfway back, almost as quickly as it was shut down, but then growth would, over the course of about a year, eventually return to the same trend it was on before the global economy shut down. 

"When we look back at this we'll say 'well that was a full year, more or less, departure from our previous path,'" he said. 

The worst-case scenario is a bit of a bottomless pit that could see deflation, reducing income for companies and making it harder for them to pay off debts. 

Poloz also said the recovery is likely to be much slower for provinces that rely heavily on the export of natural resources such as oil and gas, an industry hit hard by a fall in global oil prices. Canada's reliance on selling commodities into international markets will return to growth slowly as countries around the world recover, and become ready to start trading, at different rates, he said. 

"As an important exporter we know our foreign counter-parties will be going through [the recovery] at different times, so it's not like we are going to have a simultaneous recovery," he said.

"That's why oil and other commodities might take a little longer to get the full benefits of a recovery."

Finance Minister Bill Morneau also made a brief appearance before the committee and revealed that Canadian banks have made 220,000 government-backed loans to small businesses to help carry them through the shut down. 

That $8.8 billion in lending is part of Ottawa's recently announced programs to provide government-backed loans of up to $40,000 for small businesses. The loans are interest free for the first year and up to $10,000 of the loan is forgivable.


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