opinion teaser

Opinion: $150B stands out in a weak economy

There’s a good reason why the cry to “buy local” for Christmas shopping has risen to a fever pitch, flooding our inboxes and social media streams with high-pressure ads to attend online craft markets and order takeout food.

Canadian households are sitting on more than $150 billion in savings right now, according to new calculations from BMO Capital Markets. They’re hunkering down for the duration of the pandemic, and the private sector and governments alike are nervous that all that money will sit dormant or seep out of the country and into the hands of Amazon.

It’s a huge amount of money, much larger than the fiscal stimulus package of between $70 billion and $100 billion that Finance Minister Chrystia Freeland says is on the way next year.

Like the local restaurants and the artisans at the Christmas fair, Freeland made it clear this week she has her eye on all that money. She wants to “unleash” it and see it flowing through the economy, bringing consumption, sales and investment back to life.

But not quite yet. It’s part of her government’s post-pandemic yet-to-be-designed recovery plan for the future. That’s where the tension lies.

“The government’s growth plan will include investments that deliver on our commitment to create a million jobs and restore employment to pre-pandemic levels, as well as unleash some of the Canadian economy’s pre-loaded stimulus: additional savings that have accumulated in bank accounts of some Canadians and balance sheets of some businesses,” Freeland said Monday as she presented her fiscal update in the House of Commons.

“This will foster economic rebirth in the short run and strengthen this country’s competitiveness in the long run.”

This week’s fiscal update took a small step to encourage “buy local” by announcing the intention to charge sales tax on purchases from Amazon.

But for businesses, especially small firms that have had trouble moving their operations online and keeping their customers, waiting for a recovery plan feels far too long.

They’re pushing government authorities at every level to create the conditions for at least some reopening. They’re urging funding for improved testing, help to make public places safer, more personal protective equipment for firms and broader use of the COVID-19 app.

The hope, explains Perrin Beatty of the Canadian Chamber of Commerce, is to funnel some of those excess savings in people’s bank accounts into struggling businesses in a safe and cautious way – well before vaccines bring the pandemic to an end.

“We need a strategy to manage the risk,” he says.

The big pile of savings sticks out like a sore thumb when you look at the state of the pandemic economy.

Statistics Canada reported on Tuesday that Canada’s GDP grew a record-breaking 8.9 per cent in the third quarter of 2020 – which works out to a 40.5 per cent expansion if that pace were to continue for a year.

But of course it won’t continue for a year, and in fact it’s less of a boost than many economists had projected for the rebound following the pervasive pandemic closures earlier this year. The Canadian economy is still 5.3 per cent smaller now than it was a year ago, and the next few months are, by all accounts, going to be just dreadful, Christmas shopping be damned.

Despite the downturn, savings have soared. Canadians were stashing away 14.6 per cent of their disposable income this fall. That’s less than the 27.5 per cent of this summer, but far, far above the single digits of the pre-pandemic economy.

Critics are quick to say it’s proof the federal government dished out way more money than it needed do, especially in the early days of the pandemic when almost anyone could qualify for emergency response benefits.

But new research from the Bank of Canada shows that low-income households needed most of their CERB funds to get by. Middle-class families soaked up the CERB and had to borrow more. And most of the excess savings are in the bank accounts of high-income households – likely a factor of pandemic constraints rather than government largesse or excess caution.

That’s why Doug Porter, chief economist at BMO Capital Markets, suspects the federal government may not need a big stimulus package after all. When pandemic restrictions disappear, those high-income people with the bulging bank accounts may pay off some debts, but they will also be wanting to travel, entertain themselves and their friends, and spend lots of money.

There won’t be much of a need to “unleash” anything, Porter argues, because that $150 billion will spring to life on its own accord.

“I think there’s a ton of pent-up demand,” he says.

If only it were set free in time for Christmas.

Heather Scoffield is a National Affairs writer.