Our recovery is making progress
In the Great Reset of 2021, the $119trillion global economy was guided back to near normality after one of the most severe blows dealt to it in generations.
Humanity has never attempted this before, nor has it needed to.
The COVID-19 pandemic, unlike the Spanish flu, the Great Depression and two world wars, reached the four corners of the world, crushing economies in its path.
Which makes 2021 a banner year, because economic recovery is now well underway in Canada and in most major economies worldwide.
By September, Canadian employment had been restored to pre-pandemic levels, after massive pandemic job loss only a year earlier.
In early December, Statistics Canada
reported that employment rose by another 153,700 jobs in November, about four times what forecasts anticipated.
That pushed total employment to 186,000 more jobs than in February 2020, the month before COVID-19 sent the Canadian economy into a tailspin.
With about 76 per cent of eligible Canadians fully vaccinated by early November, many of last year’s restrictions on economic activity were lifted in 2021.
As a result, economic growth in Canada will be roughly twice its normal rate this year and next.
A labour shortage that impeded recovery in 2021 will ease as Canada welcomes approximately 800,000 new Canadians in total this year and next.
The inflation rate for October, Statistics Canada’s latest reporting period at this writing, was alarming, at 4.7 per cent — an 18-year high.
In November, U.S. inflation was even higher; at 6.8 per cent, it was close to a 40-year high. The main reason for the difference is America’s more severe labour shortage, due largely to unusually low U.S. immigration levels for the past several years.
But the consensus forecast for Canadian inflation is 2.6 per cent next year, and about two per cent in each of the next three years.
That might seem to be a sanguine outlook given, for instance, GTA pump prices currently about 44 per cent above the price this time last year. But today’s higher prices are a short-term hardship, as we’ll see.
Abnormally high short-term inflation is the price we’ve had to pay in 2021 for economic recovery.
Price-inflation has been a vicious cycle in 2021.
Pent-up demand for goods after an 18-month consumer spending hiatus has overtaxed supply chains, crimping supply and pushing up prices.
Decades of offshoring and global
Abnormally high short-term inflation is the price we’ve had to pay in 2021 for economic recovery
ization have made the North American economy vulnerable to fragile extended supply lines.
China’s periodic factory shutdowns this year due to COVID-19 outbreaks have held up supply of North American goods that once upon a time were made locally. Chinese and American ports are struggling to handle as much as three times the cargo they were designed to process.
And America is suffering an acute shortage of long-haul truckers who bring goods to Canada from clogged California and other U.S. ports.
All of that has brought a new appreciation of buying locally. This year has a seen a new “in-shoring” movement to repatriate offshore production to North America.
But that movement is in its infancy. In the meantime, the higher transportation costs are passed on to Canadian consumers.
So are higher prices for steel to satisfy accelerated investment in wind farms and solar-energy facilities. And of lumber consumed in this year’s home-renovation boom. And of cobalt, lithium and other strategic materials in the race to build electric vehicles and more robust batteries.
Prices have risen across the economy as we try to decarbonize it as we rebuild it.
A glaring example of this year’s supply woes is semiconductors, the brains of our information economy. The shortage of chips has driven up the price of smartphones, notebook computers and automobiles, both new and used.
In last year’s first phase of the pandemic, we learned that the largest portion of the world’s most commonplace medical supplies — gowns, masks and antibacterial lotions, for instance — came from China.
This year, as Canada has hastily achieved self-sufficiency in some of those medical supplies, the world has awakened to the fact that about 80 per cent of the planet’s highestperforming semiconductors are made by just one company, Taiwan Semiconductor Manufacturing Co. Ltd. (TSMC).
The U.S., Europe, and Canada, now alert to that vulnerability, have this year designated some of their unprecedented stimulus spending to achieving an early semblance of self-sufficiency in semiconductors and other goods of strategic importance.
And, in the short term, government stimulus spending has been another major cause of inflation.
By infusing Canadian households and businesses with more than $300 billion in pandemic income supports, Ottawa kept the economy primed for as strong and rapid an economic recovery as possible.
Every national government and central bank that quickly pushed unprecedented amounts of pandemic-relief money into their economies knew that they risked setting off a round of above-average inflation.
By protecting household wealth and business viability, the fiscal stimulus in Canada and abroad fed today’s pent-up consumer spending, in which too many dollars are chasing too few goods.
During 2021’s widespread inflation, prices of some goods and services have actually declined this year, including vegetables and certain professional services.
And the current above-average inflation rates seem unlikely to top the 5.6 per cent peak of 1991, or the double-digit inflation of the 1970s and early 1980s.
The pandemic stimulus worked. It accounts for one of the biggest and fastest economic turnarounds in history, from a 2020 pandemic economic collapse with no real precedent in the speed and depth of the plunge.
Now all those inflation-causing factors need to be unwound. “The market is going to have to adjust from a 100-year shock from the pandemic,” Kevin Page, former parliamentary budget officer, told CBC News in November.
In 2021, that great unwinding began. Ottawa has curtailed most of its pandemic relief spending. And the Bank of Canada (BOC) is ending its pandemic-era financing of that stimulus with its purchases of government debt.
The BOC, like its global counterparts, is now poised to make a series of interest rate hikes next year. The resulting higher borrowing costs should help curb inflation.
Meanwhile, the world oil price, at $79.15 (U.S.) per barrel at this writing, is a far cry from the 2008 peak of about $133.88 (U.S.).
The current GTA pump price is “only” 22 per cent higher than the November 2019 pre-pandemic price. And it will fall in coming months, as oil producers and refiners gradually return to full capacity after widespread shutdowns last year.
There will be downward pressure on labour-cost inflation, as well, with a recovery already underway from unusually low levels of immigration made necessary by pandemic travel restrictions.
By this time next year, as global demand eases from 2021’s aboveaverage rates, there will be less stress on international ports.
Where we won’t see price relief any time soon, it appears, is in GTA housing costs.
To be clear, the Canadian economy has responded this year to the housing shortage. In the 12 months to September, builders ramped up Canadian housing starts to 260,500, the highest number in 44 years, and 26 per cent higher than the average for the previous four years.
The crisis in housing, set to outlast the pandemic, is a shortage of affordable housing. And that shortage is driving people out of Toronto and North America’s other largest cities.
So soon after urbanologist Richard Florida’s heralding of a new “creative class” of inner-city dwellers a few years ago, 2021 revealed a spectre of hollowed-out cities on the horizon.
In StatsCan’s latest report on urban population growth, the Toronto Census Metropolitan Area (CMA) suffered a net loss of more than 50,000 residents in the 12 months ending July 1, 2020. Recent U.S. status show a similar exodus from overpriced housing markets in Los Angeles, San Francisco and neighbouring Silicon Valley, and other large population centres.
In its October report on Canadian house prices, Moody’s Analytics said the Toronto housing market was almost 40 per cent overvalued, based on latest prices compared with the previous quarter.
Yet in November, the average price of a home sold in the GTA increased again, to a record of $1.2 million, or 22 per cent higher than the same month a year earlier.
And in December, Re/Max Canada forecast that average Toronto house sale prices will climb another 10 per cent in 2022.
“Big-city (housing) supply issues are likely to persist,” said analyst Robert Hogue of RBC Economics, “especially as stronger immigration drives up housing demand in coming years.”
Leave it to the experts to try to explain how Toronto could rise to the challenge of an unprecedented pandemic but leave its decades-old crisis in affordable housing unsolved.
Happy holidays. Be well and stay safe.