Dr. Mohammad Rohaman
The following is an excerpt from an article Dr. Mohammad Rohaman wrote for The Chronicle Herald.
The effect of COVID-19 on the Canadian economy has been swift and dramatic. Before COVID-19, the economy was expected to grow at a 1.6 per cent to 1.7 per cent rate in 2020. The Bank of Canada now expects economic activity to slow by as much as 30 per cent from the end of 2019; one estimate by Bloomberg projects a slump as high as 40 per cent. Just by looking at the number of unique applicants for the $2,000 Canada Emergency Response Benefit (CERB), it appears that the pandemic has effectively wiped out all job gains made in the Canadian economy over the last 30 years.
How prepared are Canadians to weather such an unprecedented and virulent economic storm? To begin with, Canadian household and business insolvencies spiked dramatically even before COVID-19. Every single day in 2019, a whopping 375 people filed for insolvency proposals, a number that hasn’t been seen since the recession of 2008-2009. To add insult to the injury, the collapse in oil and gas prices led to a sky-high number of business insolvencies in 2019, the first such increase since 2001. On top of that, Canadian households owe $1.76 for every dollar in disposable income, one of the highest rates in the developed world. In places like Vancouver and Toronto, that spikes to about $2.40, at a level only seen in Iceland before the global financial crisis. The insolvency accounting firm MNP Consumer Debt Index, released recently, found that about half of Canadians (49 per cent) surveyed are now on the brink of insolvency, saying they are $200 or less away from not being able to meet their monthly debt obligations. It is therefore fair to say that Canadians entered the COVID-19 episode quite ill-prepared.
Why aren’t we seeing bankruptcies piling up? Because we are now witnessing the calm before the storm. Right now, every Canadian consumer and business are essentially creditor-proof due to the federal and provincial income, wage and rent support system and, of course, courts are closed. The trouble is the government does not know whose credit is good and whose is bad, but the bank knows. When the economy starts to reopen, the fault line will emerge, and some businesses will likely fall through the crack. Being accountable to their shareholders, banks are unlikely to pick up the slack when the government safety net ends…
Click here to view the entire article Dr. Rahaman wrote for the Chronicle Herald.