Q and A with the experts: re-starting the economy
What do staged re-openings mean for economic recovery?
This week governments in Saskatchewan and Quebec announced timelines for the re-opening of their economies. In Ontario and Alberta, a structure for what re-opening will look like was also outlined.
But what do these staged re-openings mean for economic recovery?
Professor Joel Blit answers our questions.
How effective is it for the general health of the economy to have a re-opening done in stages?
Firms like predictability, something that is in short supply these days. It helps them plan their hiring, investments, and other business decisions. Having a clear plan for reopening is therefore important. Unfortunately, at this point the plan is too vague to be of much use and little has been offered in terms of timelines.
The sooner we reopen, and the more fully we do it, the better for the economy. The gradual reopening is being done out of caution (health reasons), not for economic reasons.
How long do you think it will take the economy to fully recover?
Before this epidemic hit, we were in the longest economic expansion in recent history. We are now likely in the midst of the deepest recession since at least the Great Depression (we may even surpass that). The U.S. economy shrank by 4.8 per cent in the first quarter due to decreased consumer spending and lower business investment. We are likely to see similar or even larger drops in economic output in Canada since we are more exposed to a fall in commodity prices, and our COVID-19 measures were overall more stringent than those imposed in the United States.
Hopes for a “V” shaped recovery are misplaced. There remains too much uncertainty for firms to rehire workers or make significant investments. Consumers’ spending is likely to remain depressed for a while, as they will have accumulated even more debt, and they are likely to be scarred by the crisis.
What are some things that the government should do to help the economy (apart from the COVID-19 supports already in place)?
As we move forward, a driving tenet should be to “never waste a good crisis”. There is an emerging understanding that recessions are needed so that economic resources are redeployed more effectively and so that firms trim costs and develop capabilities for the future.
Government interventions are currently rightly focused on supporting businesses so not too many go under, subsidizing payroll so not too many Canadians lose their jobs, and supporting Canadians who did lose their job. In time, we must shift the focus to more strategic investments for the future. The current supports need to be removed so that firms have incentives to reinvent themselves, developing new products and adopting the latest technologies. Government may even want to directly incentivize investments in innovation and automation, while at the same time supporting Canadian workers whose jobs will be disrupted. We are undergoing an AI and robotics revolution that will change the future of work. The current crisis is an opportunity to invest in this future and emerge out the other end stronger.
The University of Waterloo has a number of experts available for comment on various aspects of the COVID-19 pandemic, click here to see the up-to-date list.