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View Gabriel Ste-Marie Profile
View Gabriel Ste-Marie Profile
2020-03-09 12:05 [p.1778]
Madam Speaker, before I begin, I would like to inform you that I will be sharing my time with my esteemed colleague, the member for Laurentides—Labelle. It is an honour for me to start things off.
On a more serious note, the global economy is in bad shape. The New York and Toronto stock exchanges both temporarily suspended trading this morning because stock prices were plummeting too quickly, as we also saw when the European stock exchanges closed. This is very worrisome, and it can be attributed to the panic created by the oil crash, which in turn can be attributed to the threat currently facing the global economy because of the coronavirus. I would add that even before those two events that caused stock markets to plummet, the global economy was beginning to show signs of a downturn. It was clearly already struggling.
According to widely reported statistics, global growth was pretty weak in 2019 at 2.9%. It is generally understood that when growth is at 2.5% or less, there is a serious risk of global recession. Things are not going well. Europe is also struggling, as it was even before the problems related to the coronavirus arose. The same is true in Asia, especially in Japan, China and other countries in the region.
In North America, the situation is not as bad, but growth is weak and, since the global economy is interconnected, the risks are real. We often get the impression that economic crises, no matter how big or small, happen roughly every 10 years. In fact, the last one was in 2008-09.
The global economy is struggling and now it is sustaining external shocks that we could not see coming, like the coronavirus, the plunge in oil prices and the resulting repercussions. The coronavirus is creating fear, which has crippled tourism all around the world. Some large regions, for example in Italy or China, the epicentre of the coronavirus outbreak, are under quarantine. We can expect an additional slowdown and, since both local and global economies are interconnected, these shocks are likely to have adverse effects on all economic sectors.
If the economy were on a strong footing, then this shock would be temporary and the economy would return to normal growth after a few months. However, as I was just saying, there are already signs of a serious economic slowdown. The current situation might be bad enough to have a serious impact on the economy and plunge us into that phase of the economic cycle we call “recession”.
The problems of the tourism industry, the quarantines and the reduction in personal expenditures could result in the classic scenario of a decline in demand that would possibly trigger an economic crisis. I am certain that our colleague could tell us more about Keynesian analysis and possible solutions later today. I will be there because it will be very interesting, and I invite all my colleagues to come and listen to him.
In his analysis of the current situation, renowned economist Kenneth Rogoff, from Harvard, is introducing a new element by suggesting that there could also be a risk of a supply shock as the coronavirus could cause a downturn in supply. The global economy is so interconnected and supply chains so diversified that a quarantine in a given region, such as China, could slow production of a component used in the manufacture of cars, transportation equipment or other goods. A single missing link could halt and even paralyse the entire production chain in a given economic sector. This possibility is worrisome and the economist Rogoff has more to say.
The Chinese economy is now twice as big as it was during the SARS crisis in 2003. Every segment of the economy is in massive debt. Individuals, businesses and local governments all rely on income coming in regularly to be able to make payments, since they are all over-indebted and over-leveraged. This becomes very worrisome if a zone is quarantined. Individuals, businesses and municipalities will no longer be able to make their payments, which could cause a cash crisis. Everyone knows that China plays a big role in the international economy. This situation is very worrisome.
The economy could slow down because of a drop in demand and also a drop in supply. Basic economic theory tells us that a drop in supply can cause a drop in production, leading to an increase in prices and inflation rates. This is particularly worrisome because the potential inflation could make the traditional methods we rely on to recover from recessions less effective.
The reason inflation has been so low over the past few years is that the primary goal of most central banks is to keep inflation within a target range of 1% to 3%. I would add that it is also due to increased trade worldwide. All this interconnectedness has lowered production costs in every sector, which could explain why inflation has not gone up. However, if the coronavirus sets off a panic and countries start closing their borders, the gains from increased international trade could drop off, leading to an inflation problem.
As I mentioned earlier, the global economy was starting to show signs of slowing down, and we are now facing two problems, namely the coronavirus and the oil crash. Let us hope this is only temporary. However, it is extremely important that governments around the world take concrete steps to help us recover as fast as possible. These problems are so serious that they could mark the beginning of a crisis, and that is deeply troubling.
Naturally, the government will have to make use of its traditional tools. We have seen the Bank of Canada, which operates independently of the government, cut its policy rate. There is also public spending. The parliamentary secretary told us earlier that it is important for Canada to maintain a world-class health care system.
Canada's health care system belongs first and foremost to Quebec and the provinces. It falls under provincial jurisdiction. The federal government's role is to provide adequate funding for the health care system in accordance with its previous commitments, but we are seeing exactly the opposite. I would like to remind members that Quebec's former finance minister, who was a member of the Liberal Party, accused this government of engaging in predatory federalism because it is not honouring its commitment to provide better funding for health care. That really says a lot. There is still no social housing agreement between Quebec and Ottawa. Money for infrastructure is not being disbursed. These fundamental tools would be useful in dealing with current problems, but the government is making the process more difficult than it needs to be. Things are not moving as fast as we would like.
No short-term solution is very effective in boosting supply in an economic downturn. The crisis is an excellent opportunity to move toward the economy of the future. The parliamentary secretary was talking about a transition economy. In my opinion, the government really needs to get on that and stop insisting on remaining in the last century's economy. The price of oil has just dropped. It does not make any sense that the oil industry is receiving more government support than any other industry. We are talking about over $20 billion with cost overruns. That is what was announced just over a year ago. The government is stuck in the past. We need to diversify the economy, and Quebec has everything it takes to succeed in the transition economy.
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