How long can a government-backed economy last?

(Photo by KMR Photography; Flickr; CC BY 2.0)

One year in to navigating a global pandemic, it’s clear that the economic health of consumers is ailing, but it’s difficult to measure by how much; and until COVID-19 passes, any economic recovery in Canada is strained.

“It’s interesting, when we think back to a year ago, just before the pandemic really began to bear down, that was probably the single biggest concern about the Canadian economy: the state of the consumer,” says Doug Porter, chief economist at BMO.

Pre-pandemic, there were record levels of debt, and interest rates had risen a bit over the last two years; so when the pandemic did land, these two factors were predicted to hurt the Canadian economy. As it turned out, the amount of government support and stimulus for industries meant that consumer struggles were an after-thought, says Porter, and somehow consumer finances have improved over the last year.

So if some households are coming out better this year than they were going into the pandemic, where’s the concern?

“Well, the concern is that there’s only so long that that government spending can continue to basically backstop the entire economy,” says Porter. “We do need things to reopen again at some point. We need businesses to be able operate in areas that they haven’t been able to operate. We need consumers to be able to stand on their own two feet, not rely as heavily on government support. We need the global economy and export markets to open up again.”

Porter believes that the consumer will hang in there fairly well this year and foresees a moderate rebound in spending. Areas like the automobile industry and the housing markets have recovered to pre-pandemic levels.

The government’s ability to back off on stimulus isn’t 100 per cent tied to vaccine rollout, but the vaccine is a way to put this crisis in the rearview mirror, says Porter. The deficit won’t get all the way back down to where it was before, but Canada can at least begin to pay it down once the economy opens up again and people are working full time, and small businesses start to earn money again.

Listen in to the full conversation for more on economic relations with the U.S., and more from Porter:

Wake up with RealAgriculture

Subscribe to our daily newsletters to keep you up-to-date with our latest coverage every morning.

Wake up with RealAgriculture