National Post (National Edition)
Stimulus plans put cash on Main Street
Massive stimulus packages designed to combat the economic fallout from the COVID-19 pandemic were unveiled both in Canada and the United States on Wednesday, with both countries aiming to put money quickly into the pockets of individuals hit by the economic standstill.
Canada’s stimulus package, which will be rolled out early next month, will almost double direct spending on the crisis to $52 billion, with anyone who has lost income due to the COVID-19 pandemic qualifying for up to $2,000 a month for up to four months.
In the United States, meanwhile, a US$2-trillion package making its way through the Senate Wednesday promised to put direct payments of US$1,200 into the pockets of anyone earning US$75,000 or less.
While central banks and government agencies are also stepping in with measures to keep capital flowing in financial markets on Bay and Wall Streets, the Main Street focus of Wednesday’s efforts comes in sharp contrast to the response to the 2008 financial crisis.
The reason is that the triggers were much different, and almost ran in reverse this time.
“The last crisis originated from Wall Street while this one came from Main Street,” said Jason Mercer, a senior analyst at Moody’s Investors Service.
In late 2007, problems first surfaced in the subprime mortgage market, causing what was initially termed a financial crisis as contagion spread across the North American and European financial markets due to the numerous interconnected transactions between institutions. This triggered a seizure in credit markets, falling stock prices, and an economic crisis.
But this time, the trigger was a near shutdown of major economies, including across North America, as governments try to contain or at least slow the fast-spreading novel coronavirus pandemic. The sudden shuttering of most non-essential businesses has caused an abrupt and severe slowdown in consumer spending, triggering credit concerns and deepening losses on stock markets already spooked by the growing pandemic.
“In this case … there’s a larger risk that non-financial businesses go under during this very deep dive in activity,” said Avery Shenfeld, chief economist at CIBC Capital Markets, noting that the focus in 2008 was on shoring up financial institutions and stimulating demand for goods and services.
“We can’t really do much to increase demand while everyone is stuck at home, so we need to ensure that both businesses and household remain solvent during what will be a record drop in spending,” he said.
The Canada Emergency Response Benefit plan unveiled Wednesday by Prime Minister Justin Trudeau will provide payments to affected workers including the self-employed and those would not ordinarily be eligible for unemployment insurance.
In the United States, it is estimated that some 90 per cent of Americans will be eligible for at least partial payments from the largest stimulus package in that country’s history.
On Wednesday, the World Trade Organization said projections indicate the economic downturn and job losses from the pandemic will be worse than during the recession triggered by the 2008 crisis.
Brian DePratto, senior economist at Toronto-Dominion Bank, said the Canadian government’s decision to broaden income support to include those who have lost hours but remain employed was a “welcome adjustment” to earlier plans.
In a note, he added that the doubling of funds being made available “should make it easier for all impacted workers to gain some support” which “strengthens the bridge back to post-pandemic normality.”
DePratto said Trudeau and his finance minister Bill Morneau are using language that suggests more aid will be forthcoming, and suggested small and mediumsized businesses are a key component of the economy that requires the government’s attention.
“The pain that small and medium sized firms are feeling is intense — we hope that additional measures to ensure that furloughed workers’ firms still exist after the pandemic control measures are lifted will be forthcoming,” DePratto wrote.
Dan Kelly, president of the Canadian Federation of Independent Business, said the emergency aid package being put in place is “a significant step forward in addressing the growing economic emergency that accompanies the nation’s efforts to avoid the COVID-19 health crisis.”
But while he commended allowing individuals to tap into the relief funds even if they lose hours rather than being laid off, the small business federation is calling on government to boost a 10-per-cent wage subsidy to 75 per cent. This would be more in keeping with the level to be doled out in other jurisdictions, and would allow businesses to continue to pay employees who can work at home even if the business itself has little to no revenue coming in.
“CFIB is focused on measures that will keep the connections between workers and employers and not require layoffs,” Kelly said.
“This is imperative to ensure employees can go back to work the day after the emergency ends, allowing Canada’s economy to return to normal as quickly as possible.”