At any other recent time, our economic indices would be considered enviable.
We live amid full employment, with more jobs than pre-pandemic, as evidenced by a labour shortage. We are flush with investment capital. Gross domestic product has rebounded. A looming 2020 recession was punted to the curb. British Columbia leads the country. Consumer spending continues to grow, in spite of …
Yes, yes, in spite of …
So, for how long?
There are strong indications a recession cannot be prevented as central banks try to tamp down inflation, their having waited months for the opportunity to tackle rising prices by raising the cost of borrowing.
It is one of the stranger looming recessions – quite different than the last significant one in 2008 across many economies – because we have high inflation, a hot housing market and price-to-earning ratios on stocks that pervade just about every category.
In taking time to tackle inflation, in their quick dismissal of fears that it might be more than transitory, the central banks permitted inflation expectation to arise and take on a life cycle of its own across products, services and, before long, wages.
It is also a strange recession in that our political leaders and even their opponents are disengaged and so far discounting it, although Pierre Poilievre has stirred the pot in a particularly naughty way. More on him in a minute.
With so many serious clouds gathering, we must soon be upon a storm. Let’s tally:
1. The 6.8 per cent inflation reading for April, the highest in 31 years, is not the worst of it nor near the last of it. Food prices are rising at such a clip that many consumers are for the first time in a decade making food choices to steer from steep increases. Gas prices in B.C., highest in North America, are not even entirely evident yet in their impact on product prices, much less in the cost to businesses that depend on transport and services they provide.
2. The stock market is not everyone’s direct play. But it is most everyone’s indirect source of wealth through pension funds and RSPs, and it has suddenly veered on to the shoals after years of outperforming the economy.
3. Nearly everyone into cryptocurrency investment is experiencing a bursting of the bubble. Bitcoin is the new Nortel. Celebrities who endorse it now ghost us. Politicians who endorse it now scare us. Hundreds of billions of dollars in investments from the low-interest-rate economy have vaporized.
4. We have saved cash in the pandemic, in part because we didn’t travel and party and in part out of apprehension. How it is expended may determine the depth of a recession; too little and it will fail to stimulate the economy, too much and it will fail to thwart inflation. It might revive the hospitality and tourism industries, and there is evidence this will be a travelling summer. Even so, along with any spending is bound to come further interest rate increases to try to put the lid on inflation, and wages are not likely to keep pace, so it does not produce a happy place.
5. Many effective measures are entering the Canadian housing market to build a broader supply that meets varying income needs, but their glacial advance will not change the prospects of ownership for many any time soon. The rise in interest rates ought to balance the market between buyers and sellers and cool the prices this year, but in B.C., and particularly in the Lower Mainland, that only sustains one of the world’s least affordable ownership climates, and many owners will experience a new world of pain when mortgages renew.
6. We have focused on China as the starting point of the pandemic, but it is actually the starting point of our economic woes. Perhaps we have forgotten too quickly the massive real estate investment meltdown of only months ago, but its economy hasn’t. Its new wave of sudden lockdowns as a zero-tolerance policy of coronavirus has staggered economic activity, cut the crucial circuitry of supply chains and undercut globalization’s Exhibit A. The world cannot afford its second-largest economy to be anything but robust. Right now, it ain’t.
7. The European economy is heading into stagflation, in part because the Russian invasion of Ukraine has prompted energy prices to soar. The continental economy looks like it will shrink this year, not all of it attributable to Russia.
8. The political climate in America is poisonous and problematic. The Democrats in power will not collaborate and the Republicans in opposition will not break ranks. Time is running out on a threadbare edge for the Joe Biden administration, and even if the spectre of a return to Donald Trump or his acolytes does not buckle the American economy, it sends other worrisome signals to much of the free world.
9. Our national political climate is itself agitated. A pact between the federal Liberals and NDP has been greeted cynically. The public sector has not been anywhere as adaptable, nimble, economical and efficient as the private sector in the last two years. Poilievre, the perceived Conservative leadership front-runner, has been shambolic by lavishing praise on crypto and threatening to fire the Bank of Canada governor and interfere in the institution’s important independence if he becomes prime minister. Last week’s resignation of the Albertan premier, Jason Kenney, has thrown a wrench into the machine at a very delicate time with energy prices sailing. Doug Ford in Ontario is actually looking sensible in this stew.
10. Last, not least, is this pesky thing occupying our conversations and convoluting our public and economic health. The perception that we could ever be truly post-pandemic this soon, when most such cycles endure five or six years, has come back to bite us, infect us, and in too many cases failed to convince us to continue to take it seriously.
It is quite the full-meal deal, and the certainty we experienced in, say, 2018, feels more like four decades than four years ago. •
Kirk LaPointe is publisher and editor-in-chief of BIV and vice-president, editorial, of Glacier Media.