Kevin Carmichael: Canada was too pessimistic in the early days of this crisis. Let’s not correct for that by becoming overly optimistic
Frances Donald, global chief economist and head of macro strategy at Manulife Invest Management, said on a conference call with a group of reporters on Monday that the divergence between her profession’s outlooks and actual outcomes has never been bigger.
Manulife’s Donald reckons those early predictions failed to recognize adequately that an epic destruction of economic output was matched with unprecedented monetary and fiscal stimulus. Central banks did in a few weeks what took them months to achieve during the financial crisis a decade ago, while the U.S. and Canadian fiscal rescues were so generous that some households ended up with bigger paycheques than they were getting from their employers before the pandemic.
Other than a dose of humility, it’s unclear what lessons forecasters should take from the past few months as they project toward the end of the year and into 2021 and 2022. The federal wage subsidy is scheduled to stop in December, and the $2,000-per-month payments to unemployed Canadians are set to end in October. The bet is that the economy will have recovered enough by then that private spending will take over as the main driver of growth.
Canada’s central bank foresees a similar trajectory, predicting earlier this month that the bounce from stimulus and the easing of lockdowns will give way to a more subdued and bumpy “recuperation” period.
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