Despite the economic crisis, savings have surged and consumer confidence has hit a 3-year high.
The impact of the COVID-19 pandemic put Canada’s economy into a tailspin, making 2020 the worst year on record, with gross domestic product declining by 5.4 per cent.
Yet other data that emerged last week tells a different story. It shows that high levels of savings and government income support packages have bolstered the economic well-being of households—notably among the youngest groups and those with lower incomes. At the same time, the latest polls taken on consumer confidence show Canadians more willing to go out and spend than at any time in the past three years.
While currently we are still emerging from the crisis, this evidence does back the widely held theory that just like the decade following the 1918 flu pandemic, the Canadian economy is heading for something akin to a Roaring Twenties as people break out of quarantine and look to enjoy their lives again.
“What typically happens is people get less religious. They will relentlessly seek out social interactions in nightclubs and restaurants and sporting events and political rallies,” Yale University medical sociologist and physician Dr. Nicholas Christakis said on the CBC Radio program White Coat Black Art earlier this year.
Like many others, Christakis believed the impact of the coronavirus would linger late into 2021. But despite fears of new COVID-19 variants complicating the panorama further, with a new flood of vaccines and signs of a sharp drop in cases south of the border, others have expressed greater optimism.
“By the time we get to the summer, we’re going to be in a different place,” Dr. Bonnie Henry, British Columbia’s provincial health officer, said last week. “In the coming months, we’re going to be able to do all those things that we have been missing for the last year.”
Bank of Canada governor Tiff Macklem has also joined the side of the debate touting a rebound beginning this year. Tuesday’s GDP figures showed the economy already starting to recover in the last three months of 2020, but that was before the holiday season lockdown.
Despite beginning the year “in a deeper hole,” Macklem has forecast a strong revival in 2021 that would continue into next year, propelled by the COVID-19 vaccine and low interest rates.
One widely voiced criticism of the Roaring Twenties idea was that poorer households whose jobs have been most affected by the pandemic would be left out. But a report from Statistics Canada released on Monday dispelled some of those fears, demonstrating that the gap between the richest and poorest actually declined in the first nine months of last year.
“Although the everyday experiences of particular households may have differed, on average, the gap in household disposable income between the lowest- and highest-income earners declined,” the report said.
In fact, the data showed that “disposable income for the lowest-income households increased 36.8 per cent, more than for any other households.” Canada’s youngest households saw their net worth rise by 10 per cent. That may be good news because poorer and younger households are in a phase of life that requires them to spend more and save less, recirculating their money into the economy.
Some studies have shown that “the wealth effect”—essentially the feeling of being richer—can encourage people to spend more, whereas if people just sit on their savings, worried about the future, it doesn’t help the consumer-driven economy.
For that reason, other data published this week showing an increased willingness by Canadians to spend money adds further weight to the Roaring Twenties argument.
Predictions vary. The Conference Board of Canada—while seeing a rise in its index for February—still sees a ways to go before reaching pre-pandemic levels. But a weekly index issued by Bloomberg and Nanos Research seems to show that consumers are ready to go shopping at levels not seen since 2018.
Even if Canadians remain more restrained than in the 1920s post-pandemic revival, a new urge to go out and spend will spread the wealth, helping the economy to get back in gear, and that is good news for everyone.
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