Positive GDP growth, expected through 2024 despite pandemic challenges, deters chances of recession

Roslyn Kunin: Don't expect a recession anytime soonThe pandemic was bad enough.

Already we are beginning to forget the initial disbelief followed by the frantic fear created by an incurable deadly spreading disease hanging over the heads of our loved ones and ourselves. Our minds are no longer obsessed with thoughts of hospitals with too many patients and not enough personnel or ventilators.

We have managed to get through the isolating restrictions of lockdowns and began to breathe easier through our masks – or even without them as vaccines started to turn a potentially lethal plague into just another disease.

Not only was COVID-19 a threat to life and health, it was also a serious and significant threat to our economic well-being. Governments could have done better to ensure a timely and sufficient supply of hospital beds, equipment and personnel to deal with the demands COVID-19 placed on the healthcare system. However, when it came to keeping the economy on track through the crisis, they are to be commended.

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We are all Keynesians now, to the extent that we believe that insufficient spending can put an economy into a tailspin. Recoveries can be long and painful, hurting citizens, businesses and, inevitably, governments. Confining people to their homes and closing many businesses and most other activities for an indefinite and unspecified period leaves a big hole in the economy. Jobs are lost, and incomes fall. Sales are lost, and businesses suffer. Income is down, and so, too, is tax revenue.

To avoid this potential financial catastrophe, government acted in a timely and effective manner, generously pumping money into the economy in the form of grants and allowances to both individuals and firms. People could not easily go out to shop, but they had the wherewithal to order all the necessities and more online. In some households, income was higher in lockdown than before.

In 2020, the year the pandemic began, consumer spending fell 6.5 percent. However, in 2021, it grew by 15 percent, more than making up for the loss. Growth in consumer spending remains positive and is expected to stay so for at least the next year.

In Canada, the reason we have an economy is to promote the well-being of citizens. The material aspect of that well-being is measured in consumer spending, which is the largest component of GDP. But spending by people is not the only component. Businesses, foreigners and governments also put money into Canada’s economy.

Business investment is one major factor that has not been rowing. Inventories have been shrinking, perhaps because there is less worry about supply constraints.

Investment in machinery and equipment is down, negatively affecting Canadian productivity. Investment in much-needed housing is down, influenced by higher interest rates.

On the other hand, exports are increasing. The world wants and needs much of what our country produces. Our low dollar makes Canadian goods and services affordable. It also encourages Canadians to spend their money at home, reducing imports and improving our trade balance.

Governments have moderated their spending since the height of the pandemic, but not by enough to push their budgets into surplus.

One factor that is very unusual in history – the tight labour market – is also buoying the economy. Job openings currently exceed the number of workers across industries, occupations and geography. Potential workers are interviewing employers rather than the other way around, and wages are rising. Low rates of unemployment are indicators of good economic times. It is hard to envision a recession when unemployment rates are the lowest in decades and show no sign of moving up.

Employment is strong, and all the major components of GDP except investment are increasing. As recessions are defined as decreases in GDP, a downturn is unlikely. Despite the doom and gloom found in some media, most forecasters expect positive growth in GDP in the three percent range through to 2024. Don’t hold your breath waiting for a recession.

Dr. Roslyn Kunin is a public speaker, consulting economist and senior fellow of the Canada West Foundation. This is an edited version of a commentary that originally appeared in The Hill Times.

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