Thank you so much.
I don't think our outlook is materially different from the one we heard right off the top from my friend J.P. at Scotiabank.
In fact, I'm often told that there's a lot of uncertainty out there, but this is one of the times in my career when I would say there is less uncertainty out there than I've seen in my career. That's because—unless you're very picky about the exact numbers—we know what the economy is roughly going to look like over the next year.
We're starting from a position now that is best described as horrible. We've seen a decline in GDP leading up to April, and you really have to go back to the Great Depression to see something similar. I like to say that I'm getting sick of living in this sort of environment; I think we all want to live in what I call “precedented times” again, but we're not there, and we have a long way to go.
The reason I say that it's fairly certain the way the outlook is going to look is that, if we run it out over the next year, and barring a record-breaking vaccine and its deployment among billions of people, we know that, at least over the next year, there are segments of the economy that health restrictions, which are going to remain in place, are going to keep essentially shut down.
The people who used to work at night clubs, wedding halls, private convention centres and so on will simply be shut out of this economic recovery, and then there are other sectors tied to international tourism and even restaurants that are going to have to open at less than full capacity. We can pretty much predict with confidence that these sectors will not be back where they were at the start.
If we add up the share of GDP that is in those industries or the share of employment that's in those industries, you're looking at a pretty substantial gap to where full employment is even a year out, and that's even assuming that we take every step along the way with exactly the right timing in terms of managing to avoid a big second outbreak that causes us to have to do a hasty retreat.
When we define it in terms of unemployment rates, for example, if everything goes well, we might be sitting with an 8.5% unemployment rate a year from now, but remember, full employment is more like 5.5%, and 8.5% is about where we were in the last recession. We're going to recover from depression-level activity to recession-level activity. It's not particularly good.
Beyond next year, it's going take some time for the economy to recover, even if a vaccine is in place at the end of 2021, so we're looking at an extended period with very little uncertainty that the economy is not going to be good, and that spells out what kind of policy environment I think we're in, so let me turn to what I think the role of government is.
I think the initial role of government was exactly what Parliament, in its wisdom, decided to do, which was to band together and make sure that we protected the most vulnerable people right away, try to prevent a wave of defaults and bankruptcies among Canadian businesses that would then disappear and not be able to restart when good times return and also, of course, to protect households and enable them to put food on the table, pay their rent and so on. That was the immediate crisis, and Parliament worked at record speed to get that done, in many cases faster than the U.S. managed to accomplish the same task, so I give some kudos to the government and the civil servants, in particular, who worked hard to get these programs out the door.
When we look ahead, the number one priority for government is on the health side. It's making sure that, in fact, sound decisions are made about what to open, what to reopen and how to do so safely, because we know that the worst possible outcome is a second wave, as we've seen with some prior pandemics, that can't be snuffed out quickly and leads us to have to go back to where we were in April. That's why I think governments have to look at things like making masks mandatory indoors, listening very carefully to what the health authorities are recommending and doing the right thing.
There is no trade-off, and I want to emphasize this, between the economy and health. If we think that, by letting businesses open that are marginally safe, we're doing them a favour, we're not, because, if the virus comes back and people get sick, not only will we take a big step backward on the economy—and I do fear this in some U.S. states more than in Canada—but we'll also tarnish household confidence. If we look at countries like China that are a few months ahead of Canada in getting the virus down to low levels, they have not seen a full recovery in consumer spending, because people have remained cautious and afraid.
We have to make sure that people have an assurance that governments and businesses are taking all the right steps, and in some cases, businesses need the guiding hand of government to guide them to that. That's the single most important criterion for policy.
The second obligation is to really make sure that we don't pull the rug out from under the economy while it's still very weak. We recently had the decision to extend the CERB program for another couple of months. There's also been an extension of the wage subsidy program. As much as some people don't like the idea of big deficits, they're really not that costly when you're borrowing at 0.5% rate of interest. A $300-billion deficit costs the government an extra $1.5 billion in interest payments. It's not really a huge share of government revenue down the road. It's a necessity to make sure that the fiscal stimulus stays in place while we're still wrestling with double-digit unemployment rates in the economy. The last thing we need is a collapse of the household sector and the business sector so it can't reopen when the time is right.
If I think about how these various policies have to shift over time. though, we do need,as we get more jobs coming back, to look at building in some nuances in some of these programs to make sure we're not providing disincentives for people to work where there are jobs available. It's important to distinguish that. For example, in the EI program, we have different weeks of eligibility depending on your region and what the background level of unemployment is. Those are steps designed in that program to ensure we don't create inappropriate disincentives. That wasn't important when these policies were first announced because we had millions of people losing their jobs—there were no jobs available—but it will become more important over the next year or so as the economy opens up.
When I think of the work that's been done to let businesses tide themselves through this period of almost hibernation for the economy, many of these programs have worked quite well. I think there's still some work to do, though, in taking a look at small businesses within cities, particularly the retail sector, and so on. We don't want to end up with our main streets across Canada, for example, with just a forest of vacant outlets a year from now. We need some of these businesses to hang in there. I think we have to look at making sure we've benchmarked the support correctly across that sector so that they can hang in there through this period. We won't save them all, but we don't want to have our cities look like downtown Detroit. We want them to look like downtown Vancouver and Toronto did before this started, or Montreal for that matter. I think that's very important.
I think municipal governments are going to be very constrained. They, unlike provinces and the federal government, can't just simply run a deficit. They have to balance the books to some extent. They have reserve funds they can draw on, but they've lost a lot of revenue. A lot of that came from land transfer taxes. Subway fares in some of the major cities, and so on, all dried up. I think making sure the municipal sector doesn't have to start a major fiscal restraint program while the recession conditions are still in place is another thing that the government has to look at.
Overall, I would say the outlook that's been presented to you today by the various economists is a realistic one. We're probably through the worst, but saying the best is yet to come and the spectacular growth rates we're likely to see off these very low levels of activity shouldn't deter you from the focus on the fact that even if we make tremendous progress, we may still have an 8.5% unemployment rate a year from now. GDP will be well below where it would have been had we grown at 1.5% or 2% a year. The job of government to fill in the cracks, keep the economy in a state where it can reawaken when the time comes, is still very much with you. I'm encouraged by what I've seen so far. The government's willing to work across party lines to get things done and hopefully we continue to see that.
I'll be happy to take your questions.