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Canada's GDP to reach WWI levels?

A Globe and Mail report suggests next year's national deficit could plunge to nearly $200 billion
Canadian money
Canadian money (Shutterstock)

A $200 billion dollar deficit.

In a year from now, the economic cost of COVID-19 could force Canada deep into the red, as deep as we were during World War 1, according to a report in The Globe and Mail.

On The Mike Farwell Show on 570 NEWS, Lakehead University Prof. Livio Di Matteo admitted it's a big number, but it needs to be put into perspective with the current state of the economy, or GDP levels.

"If it gets to that point, it works out to about eight per cent of GDP," he said, "That's what the deficit was during the 1981-1982 recession, about eight per cent of GDP.  During World War 1, the deficit as a share of GDP was also in the eight, nine, ten per cent range at it's peak."

"It's comparable to those types of situations."

He says the ratio peaked closer to 23 per cent during World War 2, but we're not up to that point.

Despite that, Di Matteo says don't expect the economy to become unstable, noting while many industries are taking a massive hit --- and in some cases shutting down --- others have either stayed flat or excelled.

"We have a pulp mill here (in Thunder Bay), for example, that all of a sudden is doing a lot of business," he said, "Because pulp is a primary ingredient into the paper masks that are used."

He says the economy will only stay stable if the strategy goes along with measures to bring COVID-19 under control.

"Not all sectors are going to be hit as hard, but the ones that are hit harder will probably need more support, even once the economy begins to recover," he said.

And when will that be?

It's hard to tell at this point.  But when that happens, Di Matteo says we'll likely transition to less restrictions, as seen in South Korea, Sweden and Iceland.

"It's a number of countries that have not quite shut everything down," he said, "They've managed to basically get the infection under control through a lot of testing and public health measures, and what they're doing is being able to essentially maintain a lot of activity."

There will be a balance to reach in there too, he says.  It seems more like a timing thing, where people are still practicing physical distancing, but also practicing infection control.

He says the sooner the infection rate goes down, and the public is assured the virus is under control, the sooner things can start opening up again.

"Hopefully that can happen in a couple months."

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