Canada will emerge from the COVID-19 crisis in a more fragile state than before the pandemic. Don’t take my word for it. That’s the opinion of the Bank of Canada governor.
“As much as a bold policy response was needed, it will inevitably make the economy and financial system more vulnerable to economic shocks down the road,” Tiff Macklem said in a speech on Oct. 8.
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The reason: debt.
Canadian households were only just beginning to get a grip on their credit habits when the central bank was forced to drop its benchmark interest rate back to near zero to offset the economic shock of the pandemic.
That vulnerability will now be tested by a recession, the effects of which could linger for a couple of years, since forecasts anticipate a long recovery period. Meanwhile, corporations and governments are amassing debt piles of their own, exposing new weak spots in the economy’s protective armour.