Executive Summary

With COVID-19 abatement measures continuing in earnest to ‘flatten the curve’, Ontario’s economy is expected to endure great hardship. Funding will be needed to ensure the health care system is able to meet increased demand, and the economy will require stimulus to ensure it can continue to function through abatement measures like social distancing. Together, satisfying these needs will come at tremendous cost. Initial economic analysis has suggested sovereign debt levels could increase by 20 percent — though the weight of such estimates are exceeded by their lack of precedent in modern history.

Many of Ontario’s businesses have spent the better part of the past bull market investing in illiquid capital, such as machinery or intellectual property, to strengthen their competitive edge in global markets. Accordingly, most do not have the operational flexibility or capacity to maintain themselves through COVID-19 abatement measures, especially given the pandemic’s unpredictability. The inability of businesses to cope with the pressure marks the beginning of what could be a swift deterioration of invaluable economic structures, irreparably harming Ontario’s future. If such structures, including supply chains, markets, private investment, and credit facilities are to survive the pandemic intact, all three orders of government must collaborate on a comprehensive plan that encompasses monetary policy, fiscal policy, and health policy.

Understanding that overnight rates are near their effective lower bound, and that the economy will require an immense amount of relief if it is to be preserved through COVID-19 abatement, unprecedented relief and stimulus measures will likely be required. Government must prioritize valuing economic relief for what it could save in relative terms, not for what the absolute cost of the relief is. The most effective relief measures will be those which immediately alleviate businesses of short-term operating expenses, allowing them to maintain staff and meet short-term liabilities. By contrast, deferring liabilities, such as taxes and extending credit, while also extremely helpful, come at the cost of adding more risk to an already highly uncertain future. Now is not the time for prolonged program testing and deliberation; it is trial by fire and the stakes are high. Confidence in the government’s ability to see the economy through the pandemic must be palpable if markets are to remain liquid. 

While relief measures look to mitigate the economic crisis, shortening the length of the crisis is of fundamental concern. Strict adherence to containment policies and the late onset of COVID-19 have served Canada well in limiting domestic spread of the disease. As a result, the Public Health Agency of Canada recently suggested we are afforded an uncommon opportunity to shorten the curve, and see a precipitous end to the crisis (Figure 1, blue).¹ If we are to seize the opportunity, exhaustive testing and tracing of the disease will be needed in compliment of continued adherence to epidemic control measures, such as social distancing. If successful in both depressing the height and shortening the length of the curve, the economic harm caused by COVID-19 would be markedly reduced, as recovery would come sooner and require a shorter amount of time.

As most recently demonstrated in the 2008 financial crisis, the Canadian financial system and regulatory framework is world-renowned for its stability and foresight. Though our success is far from certain, Canada and Ontario have done well so far in managing the potentially exponential growth of the novel coronavirus. Now is our opportunity to once again demonstrate our dexterity in overcoming highly complex and nuanced industrial challenges. Working in concert with our health care system, Ontario commerce will once again demonstrate that our economy is one of the most resilient in the world.

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