For 2021: Continue to Look Forward

Erica Szczech - Dec 10, 2020
Amidst the ups and what seem like mostly downs of 2020, there has been light shining from the North. Despite the difficult circumstances we have faced, there are many bright spots to reflect on as we look forward.
Winter cityscape

Amidst the ups and what seem like mostly downs of 2020, there has been light shining from the North. Despite the difficult circumstances we have faced, there are many bright spots to reflect on as we look forward.

Unlike previous recessions, the economic impact of the pandemic has been uneven and concentrated to certain sectors. This has resulted in a relatively weak multiplier effect for the overall economy. Sectors that have been able to thrive during the pandemic, such as technology, have helped to drive equity markets. Canadian equity markets, generally influenced by the energy and resources sectors have been hindered by lower demand due to the slowdown. In response, many companies have reassessed their business models, cut costs and leaned operations.

After the spring shutdowns, Canada's economy rebounded better than expected as restrictions lifted. Employment levels grew faster than anticipated, as did consumer spending. The housing market continued to perform well. Unlike other developed nations, household incomes grew at a time when the economy contracted and savings rates also increased.

One must not overlook the significance of government stimulus efforts. Canada has been ery generous with its support and as a result, will have the largest stimulus deficit of any nation globally in 2020. While there are likely to be future consequences, the good news is that the current cost of carrying debt remains low due to near-zero interest rates. In the 1990s, more than 35 percent of government revenue went to pay interest costs on federal debt. Today this percentage hovers in the single digits. Many questions remain, will recovery drive enough economic growth to reduce the burden or will austerity in the form of tax increases or reduced spending be needed?

In the near-term, the outlook continues to have an air of uncertainty as we endure the difficult winter months with an advancing virus. However, we can all take comfort in the recent news of the development of effective vaccines. This is a remarkable feat considering the typical vaccine time-to-market is 10 to 15 years - the fastest ever, the mumps vaccine took four years.

Progress in combating a pandemic takes time, but we will get there. And as we have seen in 2020, equity markets don't wait on the sidelines for recovery to happen. They are forward looking in nature - perhaps an admirable quality to uphold as we leave 2020 behind and bring in the new year.