Pandemic, protectionism will test Canada’s recovery
Positioning Canada's economy for continued success must remain a top government priority.
The finance minister's mandate letter stated the need for “a plan for long-term economic growth,” which we expect to see in the next budget.
Increasing immigration, reducing interprovincial trade barriers, and a focus on global competitiveness should be cornerstone measures of the plan to grow our economy.
Strong headwinds face Canada's economy at a time when government spending was significantly increased to avoid the worst economic outcomes of the COVID-19 pandemic.
The economic update in December highlighted Canada's success. While numbers differ between sectors, 106 per cent of the jobs lost at the height of the pandemic have returned, and GDP is expected to return to prepandemic levels early this year.
The country has maintained the best net debt-to-GDP ratio in the G7 and the Department of Finance projects a declining debt-to-GDP ratio over the next five years.
However, there are dark clouds on the horizon that cannot be ignored if we want to grow the economy and maintain a strong fiscal position.
First, the rise of Omicron cases, coupled with new lockdown measures, will not only increase costs of government support programs but will also have an impact on the economic forecast for the first quarter of 2022.
The unanticipated pressures of the pandemic have impacted the health system now for nearly two years. This reality, coupled with pre-pandemic challenges of an aging baby-boomer demographic, has premiers calling for additional health funding.
The second threat is rising global protectionism. COVID has countries looking increasingly inwards. While emphasis on domestic capacity and supply-chain resiliency is not inherently poor public policy, an increasingly
protectionist global economy poses a risk to Canada's economic prosperity where approximately 32 per cent of our GDP comes from exports.
Those exports are heavily reliant on the United States, our largest trading partner, which receives 75 per cent of our export value.
However, the economic cooperation that has underpinned our relationship has been under stress, first by the Donald Trump presidency, and now a Biden-led administration with a strong focus on internal issues. The Buy American Act, EV tax credit, proposed Senate legislation on mandatory country-of-origin labelling (MCOOL), and softwood lumber duties, are just some of the examples of that reality.
As the plan for economic growth is crafted, solutions require looking out both ends of the proverbial telescope: continuing to promote and protect Canada's economic interests globally while driving innovation, immigration and greater cooperation at home.
Globally, commitments on leveraging and protecting existing trade agreements, positioning our small and medium-sized enterprises to export, and diversifying trade relationships — notably with a focus on the Indo-Pacific — are all important measures that need to be pursued in earnest.
Domestically, investments made in Budget 2018 on regulatory modernization have made a difference. Building upon and strengthening that work is crucial. A World Bank ranking on the ease of doing business has seen Canada's position fall from 4th place to 22nd. This demands a sharper focus by government to reduce prescriptive regulatory models that stymie innovation, investment, and prevent the competitive advantage that could be achieved with more efficient regulatory measures.
On protectionism, we need to double down on interprovincial trade barriers. If premiers want more money for health care, they need to be willing to help create the conditions necessary to make those investments sustainable. Yes, inter-provincial trade is a well-trodden subject, but a recent Senate report estimates there is an unrealized two-to-four per cent of GDP growth that reduced inter-provincial barriers could create.
On labour, Statistics Canada estimates that there were 900,000plus job vacancies in the third quarter of 2021. As Western countries grapple with an aging population, further expanding immigration is essential to Canada's economic future. Increasing housing supply and fully implementing $10-a-day child care will be necessary investments to support a skilled workforce.
The good news is that there are priorities in several ministerial mandate letters that can help form the basis of the government's long-term economic growth strategy. In a world of competing priorities and finite resources, especially during COVID-19, we must stay steadfastly focused on economic growth to create the means to tackle other pressing issues while maintaining our strong fiscal position.