COVID-19's fiscal impact likely far worse than 2008-09 – economist

The pandemic will inflict unprecedented damage on the Canadian financial system, David Rosenberg warns

COVID-19's fiscal impact likely far worse than 2008-09 – economist

The effects of the coronavirus pandemic on Canadian finances are likely to be more pronounced than those seen during the 2008-09 recession, according to economist David Rosenberg.

“I think it is a global depression,” Rosenberg said in an interview with BNN Bloomberg. “It depends on what you want to define as a recession or depression. A recession is a haircut to GDP and within a year, who's going to be talking about a recession anymore? Nobody. But with a depression, you're still going to be talking about it for the next five, 10 years.”

As of Wednesday, more than 3 million cases of COVID-19 have been reported in over 185 nations and territories. Economies have stagnated as governments around the world implemented strict measures, including social distancing and work stoppages, to halt the spread of the contagion.

Mounting debt and unemployment are exacerbating the threats to Canada’s economy and financial system, Rosenberg said.

“If we call ‘08 and ‘09 the ‘Great Recession,’ this is 10 times worse at any level. How is this just a plain little recession?” Rosenberg said. “Depression is something that happens every century but the definition is that this will cause a secular shift in attitudes in terms of how we live, how we work and how we travel, and the approach toward debt and spending. This is going to be a long-lasting impact here.”

Laura Dottori-Attanasio, head of domestic banking at Canadian Imperial Bank of Commerce, recently mirrored these sentiments, saying that the crisis might trigger a vicious downward spiral in the national market.

“I think it’s been really tough on people, not just financially but mentally – there’s just so much stress in the system,” Dottori-Attanasio said. “That stress will continue to build until we get a little more clarity about what happens next and when it happens. We do have a highly indebted Canadian consumer that we’ve been talking about for quite some time, and just under half of Canadians live paycheque to paycheque.”