B.C. has a chance to emerge financially better from the COVID-19 pandemic than every other Canadian province, according to one of the country’s leading economists.
Douglas Porter, who is BMO’s chief economist and managing director, told an Urban Development Institute Okanagan webinar on Thursday that the province has a variety of factors going for it when it comes to dealing with the worst economic disaster to hit the planet in the last century.
“We would be a bit more upbeat on B.C. in terms of its rebound next year,” Porter said. “B.C. is in better fiscal position. It’s not an energy exporter. It’s not an oil exporter. It also was a little less affected than Quebec or Ontario by the virus. We just feel B.C. has better underlying fundamentals than most of the rest of the country.”
Porter sees the province ending up in the middle of the pack when it comes to the pandemic’s negative economic impact; he projects B.C.’s gross domestic product to drop by 5.5% in 2020. The provinces that are getting the double whammy of the pandemic and oil woes—Alberta, Saskatchewan, and Newfoundland and Labrador—will be hardest hit, according to Porter.
“Before this ever happened, we had long been of the view that B.C. had the best medium-term prospects for a variety of reasons, whether it’s the fiscal situation or whether it’s the underlying industry breakdown in B.C.,” Porter said. “For a variety of reasons, we just believe B.C. has the best medium-term growth and we still believe that.”
That, of course, is looking at the glass like it’s half full. The reality is there’s hardly anything in the glass, and what’s in there will soon evaporate. To put the pandemic’s economic impact into perspective, Porter noted that when the global economy tanked in 2009, it went down about 0.2%. COVID-19 will deliver a 3% blow this time around.
Porter must have been in a good mood on Thursday, though, because he kept bringing up reasons why Canada and North America will fare better than other parts of the world when the rebound happens. The Canadian economy was already strong, the Bank of Canada is essentially bankrolling the $200 billion price tag from federal government subsidies, and the interest rate on the money that Ottawa is borrowing for those payments is only 0.6%.
“In some ways we were lucky—and I know it sounds bizarre to talk about being lucky—but we were lucky that this happened when it did, when real interest rates were negative and when long-term borrowing costs were extremely low,” Porter said. “Had this happened in the 80 or the 90s or even the 2000s, we would have been in incredibly tough situation when interest rates were much, much higher.”
The Bank of Canada’s quantitative easing, which is essentially printing money, can’t happen too long, and Porter reminded those on the call that the federal programs will take the country until only June. The hole gets deeper if the economy remains stagnant well into the summer.
Porter and his team predict Canada’s economy will plummet by 6% this year but then rebound by 6.5% in 2021. However, he said some sectors, like travel and hospitality, could need years to get back to normal.
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