The 46th crystal balls La Presse | Towards a return to normal

After the shortages and price increases, what does 2022 hold in store? The annual economic forecasting exercise of Press, which is in its 46^e year, takes place in a more serene context than a year ago, but just as uncertain. Our discussion of the challenges ahead with our four specialists.

Helene Baril
Press

Between inflation and Omicron

Even handicapped by a scarcity of labor, Quebec ends the year 2021 with a lion, with economic growth of over 6%, one of the highest rates in the industrialized world.

This is unheard of, and it will probably never be seen again, as the pandemic and the post-pandemic recovery have turned economists’ indicators upside down. As the world regains its marks, Quebec will return to a more modest growth rate, lower than the Canadian average. In 2022, it is Alberta and Saskatchewan that will drive the Canadian economy towards growth of 4%, predict economists consulted by Press.

“There is a catch-up effect in the two provinces,” explains Robert Hogue, economist at the Royal Bank of Canada, who is in Toronto. The rise in the price of oil has resuscitated investment and growth, a momentum that will continue into 2022, he predicts.

The Quebec economy, which had plunged deeper, made a remarkable rebound. The DNA of the Quebec economy allows it to better resist crises, such as the one caused by the pandemic. “Quebec is the third most diversified jurisdiction in North America,” adds Matthieu Arseneau, economist at the National Bank. It helps us when shocks like that happen. “

Significant weaknesses

We should not expect a similar performance in 2022. Moreover, on closer inspection, the 2021 figures indicate significant weaknesses. “The number of hours worked has not returned to the level before the pandemic,” said Jimmy Jean, chief economist of Desjardins. And the investment record is not good. “

It is the scarcity of labor that is responsible, according to him. Companies are reluctant to invest in equipment and new technology when they are unsure whether they will find the employees to operate them. “This is the number one problem and it will end up showing in the numbers,” believes Jimmy Jean.

The total number of hours worked, which has not yet recovered the lost ground, is a clear indicator that the scarcity of the workforce is slowing Quebec’s growth, estimates for his part Dominique Lapointe, economist of the Bank. Laurentienne, which sees Quebec’s growth rate below 3% in 2022.

Like his colleagues, Dominique Lapointe is more worried about 2022 since the appearance of the Omicron variant.

Dangerous inflation

Inflation is the other big uncertainty on the global economic horizon that everyone has underestimated. Our panel believes that the Bank of Canada has the right approach: they care, but do not panic.

Some of the price increases are certainly transitory, assures Jimmy Jean, unless you no longer believe in the law of supply and demand. The supply of goods has been unbalanced by confined consumers and prevented from consuming services, he explains, but the supply is still adjusting, sometimes excessively, he explains.

Massive investments have been announced to address the semiconductor shortage. “In a few years, we will be swimming in semiconductors and prices will drop,” he predicts.

Central banks will have to react sooner than expected to calm inflation expectations, but the increases will be gradual, predict the four economists. “The greatest risk at the global level is that central banks increase their rates too aggressively”, summarizes Dominique Lapointe.

The rise in interest rates will hurt governments that have become over-indebted to fight the pandemic and households that have taken out loans that are too heavy, but the rise should not be too painful for the economy as a whole.

It must be said that, according to the forecasts of our economists, the Bank of Canada’s key rate will be at 1% at the end of 2022, which remains very low.

For the real estate market, the outlook is certainly gloomy, believes Robert Hogue. “And that’s a good thing because price increases like the ones we’ve seen are not healthy. ”

2021 revised and corrected

At the same date last year, the economists invited by Press to share their forecast for 2021 were swimming in fog. Any hope of an economic recovery depended on the commercialization of effective COVID-19 vaccines.

“A long year of convalescence”, we had titled the file on the prospects for 2021.

In fact, the convalescence was very short for much of the economic activity, which has picked up at great speed. But for the service sector, restaurants, tourism, the arts and entertainment, the convalescence does not. is not yet complete.

Happy surprise

Most surprisingly, for the economists on our panel, the permanent damage to production capacity was limited. “As if we had turned off the light and turned it on again,” illustrates Matthieu Arseneau, economist at the National Bank.

Thanks to the generosity of governments and accommodating monetary policy, the number of bankruptcies has fallen and disposable income has increased, unheard of in a time of crisis.

“What we see as distortions in the economy today is due to these massive transfers from governments,” says Dominique Lapointe of product shortages and breaks in supply chains.

The return of inflation, after decades of absence, is also an unintended consequence of measures taken by governments to combat the impact of the pandemic. Consumption of products of all kinds has exploded in all Organization for Economic Co-operation and Development (OECD) countries, where consumers have both more money in their pockets and fewer opportunities to spend it. .

Matthieu Arseneau believes that governments have been too generous. “What surprised me the most is that we have maintained such generosity for so long,” he says.

Government assistance was surely essential, believes economist Robert Hogue, economist at the Royal Bank of Canada, “it’s always difficult to have policies that have the right timing and the right scope”.

Manage the consequences

But what is done is done, and we must now manage the consequences of these exceptional measures, in particular inflation and rising housing prices.

“It’s a supply problem and it will normalize,” said Jimmy Jean, chief economist of Desjardins.

On the other hand, other price increases could persist, such as housing prices or costs related to the energy transition, according to him.

Governments are now tempted to financially help households cope with the rising cost of living. The Quebec government, for example, has just announced the payment of $ 3.3 million to Quebec households to help them cope with inflation.

Such measures may be justified, provided they are temporary, believes the economist from Desjardins. “If we want to solve an inflation problem, it is not by stimulating demand that we are going to do it,” he explains.

Climate: avoid the worst

The energy transition is a major risk for the Canadian economy, which still does not have a concrete plan to deal with it. It is also a subject always absent from economic forecasts.

“The emission reduction targets are increasingly ambitious, but the plans lack pragmatic details,” notes Dominique Lapointe, economist at the Laurentian Bank.

Long transition

The oil and gas sector accounts for a large part of Canada’s gross domestic product (GDP), at around 10%. In 2022, Saskatchewan and Alberta, two oil-producing provinces, will have the highest growth rates in the country.

Pressure is mounting from environmentalists and investors alike to reduce Canadian oil and gas production. “Despite the appetite to shut everything down, we have to be realistic, the energy transition will take time,” underlines Jimmy Jean, chief economist of Desjardins.

The danger of going too fast is to end up as in Europe, where natural gas prices are skyrocketing because insufficient investments have reduced supply.

Do not spit on natural gas

Dominique Lapointe, of the Laurentian Bank, believes that we must start by having a debate on the role of natural gas in the energy transition. “We are against that [le gaz naturel] in the midst of environmentalists, but if we have to go back to coal … “, he says.

Natural gas could help Canada in its energy transition, he believes.

Jimmy Jean believes that Canada must give itself the chance to take advantage of technologies like carbon capture to produce cleaner oil.

Companies in the sector are also ready to do it, believes Robert Hogue, economist at the Royal Bank of Canada, who also calls for realism. “We’re going to need these energies for a long time. “

To find solutions, we must avoid confrontation and maintain the support of the population to the need for decarbonization, summarizes Matthieu Arseneau, economist at the National Bank.