Jacques Nantel (Photo: HEC Montreal)
Quebec’s economy is not yet at the end of its problems according to HEC Montreal professor emeritus Jacques Nantel, who predicts a recession later this year. This is one of the effects of the crisis on COVID-19 that he refers to in his book Take it out! Our consumption between pandemic and climate crisis. Deals he was interviewed for the publication of his book.
Les Affaires – You mention in your book that we are in danger of going from a status of “confined consumer” to “consumer under siege”. What do you mean ?
“Nantel” Jacques. Being confined, we could do nothing or really spend. But in the years to come, the “besieged consumer” threatens to come under pressures he doesn’t like: rising inflation, rising interest rates, rising tax rates and falling services because in debt that needs to be lowered.
The state has done well to increase debt and money supply to support the economy during the pandemic. But it has created problems, including inflation, that are inevitable. And which is exacerbated by the logistics problems experienced by companies.
There are two ways to reduce debt for the state: get more money out of the pockets of taxpayers or businesses and reduce services. There will also be another solution, especially rapid GDP growth, but I don’t have much hope in the medium term on this topic.
LA-Are you worried that inflation of more than 2% will become common?
JN- I have always been skeptical about the central bank’s goal of keeping inflation at 2%. As if he could control it directly! There is no “inflation” button he can press. There are no factors pointing to the situation the Bank of Canada wants: supply chains are still turbulent, the money supply is high, and labor shortages and the rising cost of living are creating higher demand for wages drive inflation.
When wages start to rise, it creates a ratchet effect. The price of wood may have dropped, but wages hardly dropped. It has a lasting effect. Inflation is becoming somewhat structural. I expect it to be over 2% this year and even next year.
LA-Are you expecting a recession?
JN- I don’t want it, but I’m afraid it’s inevitable. Many Quebec companies are still using artificial respirators thanks to government assistance that are still present. When this support is lost, many of them will not survive. I hope I’m wrong, but I believe the recession will come in the 3rd or 4th quarter of this year.
LA – Buying locally was mentioned during the pandemic. Is this a trend that will continue?
JN – Yes, but not for the reasons we think. Local buying will come from retailers, institutions and businesses, not consumers. This will continue because we realize as a society that our production and our consumption are becoming vulnerable to the very long supply chain abroad and therefore more vulnerable. The other consequence of the pandemic is that we have discovered opportunities for local production. For example, we don’t make wipes in Quebec. But having a minimum production from it in all sorts of places would be wise. It should be encouraged in particular by the State through institutional purchases. Local production will grow, I have no doubt.
LA – Do you think pandemic consumption has changed? What is consumption tomorrow?
JN- The pandemic is likely to have a significant impact for the future. Some spending will increase for structural reasons, such as housing, which will eat up a larger portion of household budgets. This will be the case for tenants as well as for landlords, due to rising prices and rents, along with interest rates.
Moreover, with wages expected to rise rather than inflation, consumers will need to reduce non -essential spending. Unfortunately, these reductions will affect sectors severely affected by the pandemic, such as catering, entertainment, culture and travel. I expect a rebound in these industries with deconfinement, but then they will be under pressure. On the other hand, teleworking generates less expenditure on transportation and clothing.
LA – Do you think the business world has learned from the crisis?
JN- I believe some companies have learned to do things differently: telecommuting, supply chain, local purchasing … But this is the exception. Most people want to go back to 2018 and not learn from it. Whatever we say and do, there is another crisis approaching the horizon: climate change. The pandemic is something of a dress rehearsal for rethinking our economy.
Editor’s note: Responses to this interview have been edited for clarity and brevity.