How likely is Canada to fall off the economic cliff?

Multiple social and financial factors are influencing the economy’s prospects

How likely is Canada to fall off the economic cliff?

The economic cliff that is feared once the Canadian government’s pandemic support ends is not likely to materialize, according to the National Bank of Canada.

A significant factor shoring up the economy’s prospects is the increase in disposable income, which has received generous boosts from the federal government’s pandemic aid programs.

National Bank economists Matthieu Arseneau and Alexandra Ducharme said that this has impelled greater consumption, in turn building momentum for the economy’s continued recovery over the next few quarters.

“The economic accounts data published in early June offers compelling evidence against the fiscal cliff scenario,” the economists said in an email to Better Dwelling. “Disposable income excluding government programs related to the COVID-19 was already back on its historical trend as of Q1.”

Read more: What will Canadians’ post-pandemic financial health look like?

Combined with the estimated $167 billion saved by Canadian households during the pandemic year, the stage is set for long-term stability – especially when taking into account the likely reopening of the economy once herd immunity milestones are reached.

“Looking ahead, an easing of sanitary measures should lead to substantial job gains this summer and keep disposable income on an uptrend,” Arseneau and Ducharme said.

However, Better Dwelling warned in its analysis of the possibility that the recovery will be lopsided.

“Disposable income is back to where it should have been, but employment isn’t even close to pre-pandemic levels. Essentially, some households more than made up the income lost by the unemployed households,” the real estate information portal said.