Murray Wood: Who's scary... and who's scary good?
Every Friday, Murray Wood takes a look at the week's news and decides who's hot... and who's not. This week, in a specia...
A Saskatchewan economics professor doesn’t think there’s as much wind in the sails of Canada’s economy as is being perceived.
The federal government released its fiscal update Tuesday, projecting a $144.5-billion deficit for 2021-22 — about $11 billion less than its original projection.
But with government debt continuing to grow, Jason Childs points out Canada will need to borrow money, which comes with an interest rate that will also need to be paid back.
“One of the more interesting things going through this fiscal update was the use of much longer-term borrowing than has previously been the case,” the University of Regina economics professor told Gormley on Wednesday.
“A lot of it would normally be in two- or three-year bonds. This year, we’re looking at 10- and 30-year bonds being really prominent in the debt structure to finance these deficits. We’ve kicked the can down the road. We’ve locked in a relatively low interest rate for a reasonably long period of time but we still have a lot of debt.”
Childs said the unemployment rate in Canada is around the six per cent mark — a percentage economists view as the natural rate of unemployment in the country.
But while unemployment is around where it was pre-pandemic, Childs said Ottawa is still providing a lot of subsidies and stimulus programs.
“It has a real risk that the growth we’re seeing isn’t real or sustainable, it’s zombie corporations or corporations on government life support that is giving us this unemployment number and high economic growth,” Childs said.
“If we pull that back — which we’re going to have to do sooner or later — are we going to see a large decrease in employment, a large increase in unemployment and a pretty significant slowdown? I think that’s a very real risk.”
Childs said the government has a low inflation forecast, which could raise some eyebrows. Currently, the inflation rate in Canada is around 4.7 per cent after this past October. The U.S. has an inflation rate over six per cent.
“I think we’re going to be stuck with inflation running at four or five per cent for the foreseeable future and we’re going to see this around the world,” Childs said.
“Combine that with some of the trade restrictions I think we’re going to be seeing over the next couple years from the U.S. and other jurisdictions (and) I think we could be stuck in a bit of stagflation. To use an economics term, the misery index is going to be really high, which is unemployment plus inflation and that can make for some real hard times for people.”
