A recession seems inevitable | The Press

(Montreal) With the central banks rapidly tightening their monetary policy to contain inflation, the economic horizon seems gloomy, agrees to say a panel of four experts before the members of the Council on International Relations of Montreal (CORIM).

Helene Baril
The Press

A new deal

Accommodating monetary policies, the massive injection of money into the economy by governments and unbridled consumption by households confined to their homes have generated inflation that should have been transitory, recalled Martin Lefebvre, vice-president, strategist and Chief Investment Officer of National Bank. The war in Ukraine and China’s anti-COVID-19 policy have been game changers, he argued, and allowed inflation to take hold for longer.

The world economy is now entering a new chapter, believes Martin Coiteux, chief economist of the Caisse de depot et placement du Quebec. “For 10 years, money has cost nothing. It will change. Governments will have to realize that a debt costs something. »

We have to spend in the right places, especially in manpower to provide the services that the aging population needs, says the one who was president of the Treasury Board in the government of Philippe Couillard and who had tightened the screw on this regard. “I would negotiate differently today,” he admitted.

An inevitable recession

Jimmy Jean, vice-president and economist of Desjardins, believed for a while in the possibility of avoiding a recession. “We wanted to believe it, but we threw in the towel during the summer. He now believes a recession is inevitable. “When central banks say that sacrifices will have to be made and start preparing the ground, it’s hard not to believe it,” he explained.

The chief economist of the Caisse de depot keeps his cards tight on the probability of a recession, but he would rather agree. “I believe in miracles, but I give miracles a very small probability”, advances Martin Coiteux.

According to Jimmy Jean, with a rise in interest rates, an energy shock and a housing bubble, all the ingredients for a recession are there. He also believes that the record number of vacancies will not prevent a recession from occurring.

Change strategies

The new global context is forcing companies to change strategies, explained Marie-France Paquet, chief economist of Global Affairs Canada. To reduce their dependence on China, some companies will want to repatriate their production, which will be done in certain sectors such as technology or medical equipment. But “it’s not the solution to repatriate everything,” she believes.

There are other options, she said. Companies can increase their stocks, have more than one supplier and enter into partnerships with friendly countries. It is absolutely necessary to make better use of existing free trade agreements, she insisted, pointing out that Canadian companies that do not take advantage of them “leave millions on the table”.

In addition, supply chains continue to improve, she pointed out. The price of containers goes down and the waiting time in the ports goes down. “Before the pandemic, a container was between US$1300 and US$1600. It went up to US$11,000 in September 2021 and now it’s $3,500,” she illustrated.

Sustained inflation

Even if central banks manage to regain control of inflation, the new world economic order will remain inflationary, according to Martin Coiteux. Central banks will therefore have to be on the lookout and, above all, remain focused on inflation rather than accepting other missions such as the fight against climate change or the search for full employment, according to him.

In the shorter term, Martin Lefebvre expects central banks to reassure the markets by giving them a signal on what to do next. He estimates that inflation has leveled off in Canada and that we will soon have “an indication of when they will be able to ease off”.

The fight is not yet won, believes for his part Jimmy Jean, who expects another 75 basis point increase in the key rate next week. He also has an advice for governments, which would facilitate the work of central banks. “Let the checks be done,” he said.