After initial economic rebound, brace for a ‘stall-out’ phase that could last six to 18 months


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‘Less bad’ seen as good will be the reality for many, many months

Michael White, Picton Mahoney Asset Management

The Great Recession dragged on because policy-makers hesitated in the beginning. They didn’t make that mistake this time. The economy crashed into a cushion of hundreds of billions of dollars rather than hard ground.

“In our view, many economists are underestimating the ferocity of this initial V-shaped rebound because the existing macro narrative underappreciates the impact of the fiscal policies that have been implemented, while simultaneously places too much emphasis on challenges that’ll only arrive later in the year,” Donald, who advises portfolio managers who oversee $1.2 trillion in assets, said in a mid-year economic update set for release this week.

Other than a dose of humility, it’s unclear what lessons forecasters should take from the past few months as they project toward the end of the year and into 2021 and 2022. The federal wage subsidy is scheduled to stop in December, and the $2,000-per-month payments to unemployed Canadians are set to end in October. The bet is that the economy will have recovered enough by then that private spending will take over as the main driver of growth.

That should happen, but it seems likely that we will have to accept a slower expansion than we would like.

We see a very real prospect of another soft patch through August, September, October as reclosures work their way through the U.S.

Michael White, Picton Mahoney

Donald is advising her clients to brace for a “stall-out” phase starting in late summer that could last six to 18 months, depending on how quickly fiscal support is withdrawn, and assuming an effective treatment for COVID-19 doesn’t arrive sooner than expected.



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