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Mathieu D'Anjou
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Mathieu D'Anjou
2020-06-18 15:15
Good afternoon. Thank you for inviting me to appear before you today.
It's clear that the COVID-19 pandemic is having dramatic human consequences around the world and is posing many major challenges for our society. We have already raised some of them. It's a health crisis, first and foremost, but the economic consequences are as dramatic. That's what I'm going to focus on today in order to give you some perspective.
To begin with, I'd like to remind honourable members that Desjardins is the largest co-operative financial group in Canada and that it offers a comprehensive approach to its seven million members and clients, including over 360,000 businesses. Desjardins's strengths in responding to the challenges of the crisis revolve around a democratic proximity governance aligned with the interests of individuals and business people. This allows us to maintain close relationships with our members and clients, especially in Quebec and Ontario, the regions most affected by COVID-19.
A good part of my job at Desjardins involves making economic and financial forecasts. I won't hide the fact that it's particularly difficult at this time, when we're going through a crisis for which it's very difficult to find a historical precedent. It's sometimes compared to the Spanish flu, but it's not a perfect comparison, and that took place about 100 years ago, which is quite a long time ago.
What we're experiencing now is more like a recession in war times or during a natural disaster than a classic recession. Prior to COVID-19, the economic outlook was quite favourable and there was no sign of an impending recession in North America. The unemployment rate in Quebec had even reached an all-time low of 4.5% in February. Two months later, it had jumped to 17%. That's unimaginable in normal times, and it's an all-time high.
From a purely statistical point of view, the magnitude of the current crisis exceeds anything that has been experienced since at least the depression of the 1930s. Between February and April, more than three million jobs were lost across the country and the real GDP declined by more than 17%. The magnitude of these declines is about three times larger than the very serious recession of the early 1980s, which lasted six quarters.
In our opinion, and this is an important message, we must still be very careful when comparing the current crisis to usual recessions, since it is completely different. It's an external shock that doesn't reflect existing financial imbalances or economic problems.
For the time being, the drop in activity and in the number of workers can be explained mainly through the containment measures put in place to stop the spread of COVID-19. We can speak of a desired pause in the economy, which is very different from an uncontrolled meltdown like the one experienced in the United States in 2008, for example. Moreover, this economic pause is accompanied by unprecedented support from the governments to limit the financial consequences for households and businesses. Financial institutions have also contributed by providing important relief measures to ensure that the pause in the economy does not result in a rise in bankruptcies. At the moment, there are none.
At Desjardins, we're proud to have been one of the first institutions to implement these relief measures for our members and clients, and we're determined to maintain our support to help them get through the crisis. To date, we've received close to 950,000 requests for our relief measures, which is huge.
Through the various measures offered, the dramatic fall in activity and employment is not, for the time being, accompanied by a general increase in financial distress. In fact, both in the United States and Canada, household incomes are increasing and savings are rising dramatically. It's very different.
The essential support of central banks in the current crisis must also be acknowledged. By mid-March, the situation was threatening to turn into a cash crisis and a financial crisis. The Federal Reserve and the Bank of Canada, however, acted to ensure the proper functioning of financial markets by injecting massive amounts of cash and even buying riskier assets directly. Today, financial markets are functioning well and cash is abundant. This allows financial institutions to continue to play their role, in particular by providing affordable credit to households and businesses.
In my opinion, it's far too early to say that we are experiencing the worst economic crisis in recent decades and that a depression is inevitable. The drop in GDP around the world will be dramatic this year because of the months of pause we've experienced, but if we manage to reopen over the next few months, the consequences for households and businesses could be quite limited. I'm not saying there won't be any, though.
Our forecast is for a strong rebound in activity over the next few months, but the effects on some sectors will last longer. We expect it will take until 2022 before real GDP returns to pre-crisis levels. That's still a long time. In the short term, a decline in unemployment rates is almost certain if reopening continues. We are already seeing it in Quebec, where the unemployment rate fell in May.
In fact, the question is whether Canada's unemployment rate will return to 10%, 8% or 6% in a few months. Then, we'll have to watch the trend of the economy. I think this will depend on the evolution of the pandemic, the distancing measures and the rebound in household and business confidence.
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