Election Elation and Vaccine Dreams
The promise of the end of the pandemic and a new power in the U.S. have economy watchers upbeat, but patience remains important with more hurdles on the horizon.
A wave of hope and optimism is being felt around the world following the announcement of three promising new COVID-19 vaccines. After nearly a year of global economic uncertainty that has reshaped the way we live and work, reaction to the news that there’s light at the end of the tunnel is driving confidence here at home and abroad. Coupled with the election of former U.S. vice president Joe Biden in the United States, there’s a newfound sense of stability that has not been experienced for some time.
So what does this all mean for Canada and the globalized economy? Let’s evaluate everything from the latest lockdowns here at home to what the future of trade looks like under a Biden administration.
Return to International Normality
With President-elect Biden set to be sworn in to the White House on Jan. 20, Canada should expect to see less turbulence with its largest trading partner than it endured over the past four years. But don’t expect to see sweeping changes. “I don’t think we are going back to a pre-Trump trade world,” says Janet Henry, Global Chief Economist, HSBC. “Mr. Biden will be much more multilateralist in approach, will re-establish relationships with traditional allies, be it Canada or Europe, and will look for a more coordinated approach to China, but there will not be a U-turn.”
Unlike Trump, Biden isn’t expected to push forward protectionist policies that have sparked trade wars with America’s allies and China, but elements of America First will linger. This includes existing tariffs and other measures that could remain in place.
Just how much freedom Biden will have in redrawing America’s trade policies will come down to the Senate runoff vote in Georgia that could shift the balance of power. If the Democrats win and take control of the Senate, they’ll have free rein in Congress to move forward with their agenda.
Canada Lockdown 2.0
Despite this good news, Canada, along with its southern neighbour and Europe, are experiencing a second wave of COVID-19 that’s resulting in regional lockdown measures similar to what we saw at the onset of the pandemic.
According to David Watt, HSBC Canada’s Chief Economist: “The economic impact won’t be quite as significant, but it is somewhat more haphazard as lockdowns are not the same across each province and that makes it hard to gauge exactly where the economic hits will be.”
While we did see the Canadian economy rebound slightly in Q3 after a lull in virus cases, expect to see those gains reversed in Q4 now that Toronto and other major Canadian cities have entered a month-long lockdown period in another bid to flatten the curve. Additionally, with CERB payments coming to an end, just how Canadians will fare in this latest lockdown is yet to be determined.
Will Debt Rain on the Green Parade?
With the federal deficit projected to be 18% of the GDP, thanks to $388 billion in emergency stimulus funding, there are concerns about Canada’s financial footing as the country continues to pile on debt throughout the pandemic.
“While in some countries they are talking about pulling back on fiscal stimulus, in Canada they [federal government] continue to talk about maintaining that level of fiscal stimulus to support households,” explains Watt. He adds: “[The government] is looking to add more fiscal stimulus to building back better in transitioning the economy to the next phase of growth and overcoming the scarring of the pandemic.”
But will the government be able to maintain this level of funding while making investments in transitioning Canada to the new green economy? According to Watt, these plans need to be put in place sooner rather than later. “If anything, there’s an increased urgency to bring in the policy changes to help change the structure of the economy to deal with the pandemic and also eventually meet the policy goals to reduce greenhouse gasses and to become a more competitive economy.”
One of the government’s core objectives for building back better is shifting away from Canada’s dependency on the oil and gas sector. Transitioning high-skilled workers in Alberta’s oil patch to green energy jobs will take time and a lot of money, and that’s why it’s imperative to have a plan in place now.
Another way Canada can accelerate the process is by attracting foreign skills and investment, which would also reduce the burden on the public purse but the country needs to be competitive on the global scale to attract the right talent and money.
Inflation’s Impact on Labour Markets
Despite the low risk of rising inflation here in Canada and in peer countries, it’s important to look at the health of labour markets around the world to get a sense of what’s coming next. The pandemic has been particularly hard on labour markets — especially those in services such as hospitality and travel. Whether these sectors are able to recover will have an impact on inflation. In the face of rising unemployment rates and decreased spending power, it will be interesting to watch what governments do to prevent inflation rates from going up.
Light at the End of the Pandemic Tunnel?
“The pandemic cannot be contained anywhere, until it’s contained everywhere.” — Janet Henry, HSBC Global Chief Economist
News that three promising vaccines that are set for rapid approval has injected considerable confidence in all corners of the world. “This rollout does lower the uncertainty for companies and it lowers the uncertainty for policy-makers,” says Henry, adding that the positive vaccine developments are helping countries build policy bridges to the post-pandemic world.
Canada has already confirmed that nearly a quarter million doses of the vaccine are scheduled to be received before the end of 2020, and other markets are in a similar place. However, just how soon these vaccines can be administered, given the sheer size of the operation to vaccinate billions of people, is still up in the air and that’s putting a bit of a damper on the celebrations for the moment.
As mentioned, the services sector has seen massive job loss numbers. Even when large swaths of the public have been vaccinated, many people don’t know if their old jobs will be coming back and it’s unclear whether we’ll see further high levels of unemployment.
So just how quickly can we get back to normal? Only time will tell.
Contact HSBC to find out more about what the outlook for the economy means for your business.
Content developed from the November 25th “Looking ahead to 2021: Global and Canadian economic update” webinar hosted by HSBC Bank Canada.
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