What does the economic future hold for us in Quebec and elsewhere in these turbulent times? An informed discussion on the emerging outlook.
In the first of the one-on-one discussion series organized by our firm, on May 21, 2020, President and CEO, Emilio B. Imbriglio, spoke with Martin Coiteux, Head of Economic Analysis and Global Strategy at the Caisse de dépôt et placement du Québec, about the economy and its future prospects. You can watch this interview online at any time, but here’s an overview.
A sudden crisis, a serious but temporary blow
Martin Coiteux began by emphasizing that the current crisis is not comparable to the one in 2008-2009, when Quebec was able to pull through with far less damage than other regions around the world. The current crisis is much more serious, although it cannot be compared to the Great Depression of the 1930s either.
“Our economy has been put into hibernation for public health reasons, resulting in a severe, albeit temporary, downturn because there will be a recovery.”
China as a point of reference
Globally, China was the first country affected by the virus and its economy resumed more quickly than elsewhere.
“It’s interesting to look at China, because you learn a lot about the nature of the recovery that lies ahead. Some sectors are recovering and others are lagging.[…] Production is recovering much faster than consumption in some sectors. Demand remains relatively depressed. Sectors are between 60% and 90% of normal activity,” Martin Coiteux stated.
Martin Coiteux added, “Generally, our economy declined less than in Europe and more than in the U.S.” The oil sector carries more weight in Canada than in the United States, which means, among other things, that our economy is more greatly affected. The impact of the crisis on the Canadian economy is somewhere between Europe and the U.S.
Sector outlook in Canada
Martin Coiteux discussed the impacts and durability of the COVID-19 effect on industries. According to his analysis, resilient firms are those that experience a small to moderate impact on employment, depending on the level of the effect, while industries that are more severely affected are equally divided into two categories related to the persistence of the setback.
Martin Coiteux explained in particular that the hardest-hit sectors are those whose activities depend the most on proximity to people (e.g. culture and recreation, accommodation and food services), while there is a lesser impact in sectors such as finance, public administration or professional services, where technology and distance are applied.
He stated that it also shows “the need to prioritize technological investments in the future. Even after the crisis is over, the trends will continue and become more pronounced. […]. This crisis, which is unlike any other, does not signal a disruption, but rather confirms trends, such as teleworking.” (For more information on the sectors Martin Coiteux discussed, view the interview video and go to the slide at 13 m., 31 s.)
Assistance measures: massive support
Emilio B. Imbriglio asked Martin Coiteux about the governments’ unprecedented financial measures, in particular, the federal government, where assistance is already almost equal to the Caisse’s total assets of $300B.
When asked how Canadians will be able to repay this burden, Martin Coiteux stated that, under normal conditions, “no government would have chosen to create a $300B deficit this year”. Rather, it should be seen as an investment, because without such an effort, the economic recovery would have been delayed for years: the fate of the Quebec economy would have been business bankruptcies, high unemployment and depleted discretionary income.
“It’s an investment, it has to be repaid,” Martin Coiteux stated. “What will help us is that interest rates will remain low for a very long time. Sustained by interest rates below economic growth, the burden is still manageable.”
The Caisse’s role
Martin Coiteux went on to talk about the Caisse’s dual mandate: manage depositors’ returns and ensure Quebec’s economic growth. In this respect, the head economic analyst emphasized that “the Caisse is solidly established and works closely with portfolio companies to ensure that the best decisions are made to get through this difficult period. Even for organizations that are not in the portfolio, we have already announced a $4 billion envelope based on certain criteria, which also supports companies in their recovery. […]. For the post-COVID period, there are also priority investments for the Caisse and companies with projects. We were here before and during the crisis. We will also be here during and after the recovery.”
With respect to the stock market, Martin Coiteux argued that at the worst of the stock market meltdown in mid-March 2020, the situation appeared to be turning into a liquidity crisis. The markets were anticipating a credit crisis potentially greater than in 2008-2009. By intervening massively, the central banks and the U.S. Federal Reserve locked in, at least for the time being, the credit crisis that could have resulted.
What are the lessons learned?
In closing, Emilio B. Imbriglio asked Martin Coiteux to look 15 to 20 years into the future and see what lessons we have learned from this extraordinary experience.
“I am confident we can say we had the capacity to reinvent ourselves when necessary, that we accelerated the necessary investments, and that we fostered economic and social resilience,” Martin Coiteux stated.
View the entire economic discussion online (in French only).