The Morning Brief – 04.15.20

By Bruce Carson


Economy — IMF Releases Dire Warning

Bank of Canada Announcement this Morning—Governor Poloz’s Last Announcement?

Canada’s Energy Industry—OPEC+, G20 and Federal Aid

Yesterday’s Report from the IMF

If there was ever any doubt about the effect COVID-19 was having and will have on the global economy, the International Monetary Fund made it clear yesterday that the world is experiencing a “crisis like no other.” The IMF called the recession “the worst in almost 100 years.”

There was also a note of caution as countries were warned that the contraction could be much worse than forecast and the recovery not as strong as predicted if the virus lingers or returns to devastate again.

Global GDP is forecast to shrink 3% this year. This the IMF described as “the deepest dive since the Great Depression.” For a recent comparison during the 2008 recession the global contraction was 0.1%.

On the positive side, growth next year is forecast to rebound 5.8% but that of course is contingent on a number of positive actions occurring as the IMF says “the risks are on the downside.” Recovery will be affected by the longevity of the pandemic, its effect on activity and related stresses in the financial and commodity markets. Canada is deeply involved in producing and trading commodities which hopefully will still occur, providing there still is  a market.

U.S. GDP is expected to contract 5.9% but come back in 2021. This must be especially worrying for President Trump as sitting presidents facing re-election in tough economic times, don’t do so well.

The Euroarea will shrink by 7.5% and world trade in volume and goods will shrink 11% in 2020.

Canada’s GDP is forecast to shrink by 6.2% in 2020 but rebound by 4.2% in 2021.

The IMF report states “strong multilateral cooperation is essential to overcome the effect of the pandemic” with aid channeled to countries facing health and funding shocks and with weak health care systems.

The IMF also stated “countries urgently need to work together to slow the spread of the virus and develop vaccines and therapies to counter the disease.”

Urging countries to work together and help poorer countries with less than adequate health care systems is a noble thought or goal, but if the IMF looks around the world, it will see a much different one than was present in 2008 when countries worked together under the leadership of the United States and the G20 to deal with the financial crisis.

Now countries are fighting each other for Personal Protection Equipment, ventilators and all manner of medical equipment. Leadership that once might have been expected from the U.S. has evaporated as President Trump looks inward to a smaller role or no leadership role at all.

Part of the policy work that must be undertaken as part of the recovery will be re-evaluation of globalization and multilateralism; two of the matters that the IMF says are needed most for a successful recovery. Supply chains are no longer reliable as countries fight for scarce supplies.

There is also emerging distrust of China and its information about COVID-19 while ironically we depend on its manufacturing prowess in order to supply PPEs to meet Canada’s needs as well as other countries including the U.S.

Global relationships are not now as the IMF would like them to be to counter COVID-19, but we can hope they will get there as the threat of COVID-19 subsides.

Bank of Canada Announcement this Morning—Governor Poloz

This morning we don’t need to speculate as to whether interest rates will be reduced as Governor Poloz has already announced that .25% is as low as they are going to get. This morning will probably be filled with discussions about quantitative easing and the role the Bank may play in keeping provinces solvent.

The Bank will also present its Monetary Policy Report which should provide the Bank’s take on Canada’s fiscal situation in the short and medium term. It will also contain a section on the global economic situation as well that presented by the United States.

It will be interesting to see if the Bank’s forecasting matches that presented by the IMF.

Regardless, the economic outlook at least for this year and much of next is dire. Which leads to the question as to why the Trudeau government would not ask Governor Poloz to stay on at least until the situation brightens.

It was almost shocking to read Bob Fife and David Parkinson’s piece in the Globe at the end of last week revealing that if Poloz had been asked to stay on, he would have. One would have thought that Prime Minister Trudeau and Finance Minister Morneau would have wanted Governor Poloz to stay through the crisis to provide continuity for Canada and at international financial meetings. Yesterday, Kevin Carmichael in an article in the National Post raised the same issues and questions advanced by Fife and Parkinson arguing that Poloz should stay.

Surely if the prime minister wants to pursue his personal agenda on appointments, it could wait until we are emerging from this depression. Stability for Canada should be the criteria, not personal agendas.

However, if the prime minister wants to dispatch Governor Poloz, it is imperative that Senior Deputy Carolyn Wilkins succeed him as Governor. This appointment would provide continuity, stability and the smarts to take on the job at this crucial time.

Given that there is no Bank of Canada rate announcement scheduled for May, today may be Stephen Poloz’s last rate announcement as Governor.

Canada’s Energy Industry, Federal Aid?

With the OPEC+ meeting over with some semblance of a positive result, should it hold together and the G20 meeting last Friday focussed on the stability of international oil markets, attention is now solely focussed on aid from the Trudeau government; what will it look like and when will it come?

There are stories, particularly the one by Canadian Press at the end of last week that refer to a split within Cabinet and with Environment and Climate Change Minister John Wilkinson and the person who previously held that post Catherine McKenna dealing with recovery, the energy sector may not get what it wants or feels necessary for it to survive.

Alberta Energy Minister Sonya Savage said in an interview yesterday with the National Post that $20-$30 billion coming into our oil and gas sector, inclusive of the service sector and drillers, “that’s the kind of program we are looking at if we’re going to get to the other side.” This would provide credit and liquidity to financially strapped companies in Alberta. In addition, federal money is needed to deal with the cleanup of orphan wells, an environmental and employment project.

It is now three weeks since this aid was promised by Finance Minister Morneau in a matter of hours, if not days.

To Come

  • Bank of Canada deals with interest rates and releases its Monetary Policy Report
April 16
  • G7 leaders conference call chaired by President Trump
  • Monthly survey of manufacturing for February to be released
April 19
  • G20 health ministers conference call
April 20
  • Unless an agreement is reached among the parties, the House of Commons returns