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Canada Eyes Biggest Economic Rebound in Half a Century, Plots Equitable Recovery - Panel

COVID-19 Insights March 29, 2021
COVID-19 Insights March 29, 2021
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The economic outlook for Canada in a post-pandemic world is a good one, but the challenge will be to ensure it is equitable and that it embraces a re-orienting on innovation and competitiveness, a high-level panel of business leaders, including BMO Financial Group CEO Darryl White, told the Canadian Club in Toronto.

Speaking on a panel moderated by Business Council of Canada President and CEO Goldy Hyder, and that included Monique Leroux, chair of the Industry Strategy Council, and Suncor Energy President and CEO Mark Little, White said that, in terms of GDP, we could see a 6 percent economic recovery in Canada and as much as a 7 percent recovery in the United States.

For video of the event: Canadian Club - Beyond COVID

“Barring a big resurgence of the virus and of going back to an environment of shutdowns, I think we can look for economic development to be, frankly, about as strong as we’ve seen in terms of a rebound in about a half century,” he said, adding that recovery will be led by factors like the easing of restrictions, the stimulus that still has to be distributed, stronger energy prices, elevated household savings and rising global demand. In the United States, if the rebound carries on at the 6 ½-to-7 percent level into 2022, he said, it will mark the biggest burst of activity over the course of 18 months since the Reagan administration.

It won’t all be smooth sailing, however, and Canada will have to work to ensure the recovery tracks across industry sectors and populations. Rising levels of household debt, while manageable now amid strong savings and high household asset values, may pose a risk to the recovery when interest rates eventually rise.

Equitable Recovery

“The virus doesn’t think about where it affects different sectors differently, and I think what we are going to see is that the resurgence also isn’t going to be distributed equally, just as it was unevenly distributed on the way down,” said White, calling for more targeted relief programs from the banking sector as well as from government.

The pandemic has impacted different sectors to different degrees, affecting both small and large businesses, including the airline industry, hotels and tourism, among others.

“We need absolutely to stabilize and secure some of the hardest hit sectors, like the airlines, like tourism,” said Leroux, calling also for a renewed public-private sectors partnership and for the fast-track of cross-sectoral programs to accelerate the recovery on a short-term basis, including investment in digital infrastructure and connectivity and in training and reskilling the workforce.

Leroux, a former Chair and CEO of Desjardins Canada, said she would be looking to the next federal budget for a comprehensive action plan, with a long-term vision for the country, “building on a lot of public investments which will be made and announced, but in a way that encourages the private sector to contribute, in order to have a very intentional plan on building back this country.”

But the priority, she said, is to continue to expand and accelerate vaccination, testing and distribution, and ensuring a strong partnership with provinces and the business sector.

That’s something Suncor has been thinking a lot about, said Little, saying that the resources sector – from forestry to mining and oil and gas – is significantly engaged with smaller and indigenous communities across Canada and could be utilized as a critical lever for vaccine rollouts.

“I think we can play a unique role there, versus what the pharmacy industry would do for the vast majority of Canadians,” he said.

“We have some really clear ‘watch outs’ in terms of sectors that get left behind and there’s some structural unemployment that we have to worry about as we look at an overall average. The de-averaging is where the real work still has to be done,” said White.

Canada Lags in Innovation and Competitiveness

White said that a key challenge to Canadian economic growth going forward and as we emerge from the pandemic will be in the innovation and global competitiveness agenda, noting that Canada is not even near to the global podium on either front.

“In fact, our competitiveness as a country, and our productivity gap, has gotten worse over time, not better,” he said, noting a recent World Economic Forum report that ranked Canada 14th in the world in global competitiveness, compared to 9th around a decade ago. In terms of R&D as a share of GDP, White pointed out that Canada is ranked around 20th in the world. “The rate of R&D spent as a share of GDP in the United States, our nearest neighbour who we compete with and are friends with, is about double, and the leaders in the world, Israel and others, are at about three or four times what we spend on R&D as a share of GDP.“

One solution to reversing that trend is to turn to policy in areas like R&D tax credits and in increasing investments in the workforce.

“I think the list is long and I think there are a lot of opportunities to address the innovation agenda and it is important that we do it in a way that is pretty close to crisis level,” he said, “because if we don’t arrest our relative standing in the world on innovation and competitiveness standing and R&D spending, we know what happens – it just continues to erode, and that’s not acceptable for Canadians.”

Another lever Canada can pull, said Leroux, is to stimulate its small- and medium-sized businesses.

“I think that we need to find a way to better support small- and medium-sized businesses to grow, to scale up, to expand internationally and to become global leaders,” she said. We have the capacity, in terms of talent, innovation, in terms of ecosystems, to do it, and I think that, if we can move the agenda with a strong collaboration between the private, public sectors, pension funds, there is a big opportunity for wealth creation in Canada.”

Noting that 75 percent of the investment into clean tech comes out of the oil and gas industry, Little pointed to an opportunity for Canada to export some of its expertise internationally, in areas including carbon sequestration, clean LNG or its work on small modular nuclear reactors.

“I think this is a great opportunity for Canada,” he said.

As Canada plots an exit from its worst crisis in modern times, White said the road must also be marked by a systematic innovation agenda that underscores investments in areas like transit, and infrastructure like broadband, while also driving an equitable recovery.

“We have an ability to do both, we have an ability to create those jobs that are going to be needed for those that are left behind, and to close the productivity gap at the same time,” he said, noting that small business in Canada represents about 90 percent of employment growth. “So, I really think that this is an opportunity for a profound change that can affect both the productivity agenda and the equality agenda.”

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Darryl White Chief Executive Officer, BMO Financial Group

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