After the extraordinary year that ends, what does the economy have in store for us in 2022? A frantic slowdown in growth and a falling inflation rate, although higher than what we are used to, according to the panel invited by the Council of International Relations of Montreal (CORIM), which launched the forecast season on Thursday.
Convincing recovery
In front of the same audience last year, forecasters were relatively optimistic for 2021 about the recovery of the post-pandemic economy. We spoke then of a recovery in V, U, L or W. “We went through all the letters of the alphabet, but few people bet on such a pronounced recovery”, notes Martin Lefebvre, vice -President, Chief Investment Officer and Strategist at National Bank.
The return to normal is slower than expected, underlines Martin Coiteux, chief economist of the Caisse de dépôt et placement du Québec. “The recovery is very convincing all over the world, but it is to be expected that it will slow down,” he said. Economic growth rates are expected to return to the levels they had before the pandemic.
Inflation, temporary or not?
The risk of rising inflation seen in last year’s forecast has materialized, to the point where many are concerned. The boom in demand for goods, fueled by the pandemic and the increase in disposable income of Canadians, will calm down, say the experts invited by CORIM.
What happened with lumber, the price of which exploded with demand from confined consumers and came down when activities resumed their normal course, is the best example of this, believes Martin Lefebvre.
Supply and demand will rebalance, also believes Jimmy Jean, chief economist and strategist at Desjardins, who believes that the ambient hysteria about inflation has no reason to exist. He gives the example of the current semiconductor shortage, which is prompting massive investments in Europe and the United States to increase production. Eventually, “we will swim in semiconductors,” he illustrates.
Resilient global trade
Due to the supply problems of essential goods that emerged during the pandemic, many countries have resolved to repatriate some manufacturing activities. The problem was not the supply chains, which proved to be resilient, but the fact that the whole world wanted to buy the same thing – personal protective equipment, says Marie-France Paquet, chief business economist. global Canada.
The problems that persist in supply chains should be resolved and must be put into perspective, she said. “If my Christmas decorations don’t make it to Canadian Tire, it’s not the same as if the chemicals a factory expects are keeping it from working,” she said.
She does not believe that many companies will repatriate activities that have been relocated for all kinds of reasons, including manufacturing costs.
Tackling the labor shortage
The pandemic has made the labor shortage even more acute, especially in Quebec, where “it is the number one issue”, according to the Desjardins economist. The crisis has prompted many workers 55 and over to retire, making the problem worse, he said.
This is also the opinion of Martin Lefebvre, who points out that those 55 and over saw their net worth increasing during the pandemic, both real estate and their other assets, which encouraged them to retire.
There are 871,000 vacant positions in Canada and 400,000 long-term unemployed, says Jimmy Jean. There are so many government programs that attempt to retrain the workforce for the most in-demand jobs that it’s hard to navigate, he says. “There is an effort to be made to make it more attractive. ”
Adapting public policies to the reality of the scarcity of labor is a long process, underlines Martin Coiteux, who specifies that governments were still striving to create jobs not so long ago.
“During the last federal election campaign again, we promised to create 1 million jobs,” added Mia Homsy, President and CEO of the Institut du Québec, who acted as moderator of the debate.
Public debts? No problem !
Should we be worried about the huge debts that governments have contracted to mitigate the impact of the health crisis? Martin Coiteux thinks we should be worried, but only a little. “Unless inflation skids, interest rates should remain low, which gives the government an opportunity to do things right,” said the economist of the Caisse de dépôt.
Martin Lefebvre of the National Bank is not worried about the current level of public debt, which will decline as the economy grows. “Governments will not take advantage of the economic recovery to reduce their debt. It won’t happen, ”he said.
The important thing is not the volume of public spending, but what we do with this money, specifies Martin Coiteux. Public funds must now be redirected towards energy transition and increasing productivity.