Policy experts warn of negative impacts, encourage steps to help affected sectors and spur innovation
In the face of the global coronavirus pandemic, the Bank of Canada has announced emergency measures aimed at counteracting economic disruptions as well as the threat of recession. But policy experts from the CD Howe Institute warn that those actions could have undesirable consequences.
“The pain of blunt measures taken by authorities and individual themselves to contain the virus affects different types of industries, workers and households in wildly different fashions,” wrote Senior Fellow Glen Hodgson and Vice President of Research Daniel Schwanen.
Deep and quick interest-rate cuts, they noted, could help increase demand for housing, further pushing up real-estate prices and prompting households to take on more debt. Public health guidance discouraging travel, large events, and social interaction could also negatively impact a broad swath of industries including hospitality and tourism; airlines and cruise ships; hotels; and the meetings industry.
“If firms in these sectors are to survive the slowdown, many will likely require targeted liquidity and bridge financing,” the two said. They also pointed to a likely impact on retail businesses as consumer spending shifts further from physical stores toward digital transactions.
To soften such impacts, they said governments could consider dispensing help targeted toward affected sectors, on the condition that it should flow through to workers. Those who do not hold “standard” jobs or employment insurance coverage, they suggested, might need a more direct financial safety net based on their recent earnings.
“A program could entice consumers to buy gift certificates for use for when affected services are able to resume normal activities,” they added.
They also noted that industry value chains, organization of work, and health and other policies are not likely to revert to their pre-coronavirus conditions. Focusing on constraints around face-to-face interactions, they said governments can provide credits or subsidies for training and investments in tools for virtual collaboration, as well as expand the virtual provision of health services.
“The implication is that economic policy will need to be nimble in the coming months, and policymakers prepared to make adjustments beyond the initial round of broad policy announcements,” the two said.
