Economic stimulus packages in Canada

Taking a closer look at what they are and what kind of an impact they’re having

The COVID-19 pandemic has had a profound influence on the Canadian economy, leading us officially into recession earlier this year. Given the Canadian government’s strict social distancing rules, there was no option but for economic activity to be greatly limited across the country.

In May 2020, the national unemployment rate hit 13.5% (which has since been reduced to 10.9% as of July 2020), the lowest since 1976. Companies have had mass layoffs, large events have been cancelled, nearly every business has gone through a full shut-down cycle and consumers have begun to think and behave differently as a result.

Federal government economic response plan

Since the onset of COVID-19, the federal government has introduced its economic response plan that offers support to individuals and businesses who need financial help.

From more well-known initiatives including the Canada Emergency Response Benefit (CERB), Canada Emergency Student Benefit (CESB), extra time to pay income tax balances and mortgage payment deferrals, there is no doubt that the Canadian government is forking up its fair share in monetary funding – $149 billion, to be exact.

Bank of Canada policy

The Bank of Canada’s contribution to the country’s economic welfare comes in the form of a monetary policy framework designed to deliver low, stable and predictable inflation. Inflation is critical because it acts as the foundation for sustainable economic growth, and if it is low, stable, predictable and close to its target, this means the economy is operating close to capacity and full employment. To support this, the Bank of Canada is committed to keeping interest rates structurally low, purchasing government bonds to lower yields, and buying private assets and corporate bonds.

This brings us to an important question: why the stimulus efforts?

Fiscal stimulus is anything that pertains to additional government spending and tax relief put forth in an effort to mitigate the impact of a recession and speed up the recovery of the economy. The theory behind fiscal stimulus is that a government wants to influence its citizens to spend more money, and therefore, create a positive ripple effect throughout the economy as a whole.

But…does this theory actually hold up?

Of course, this is the hope, however, research from the Fraser Institute that analyzed numerous stimulus measures showed that these efforts are, almost certainly, ineffective. In many past cases, the economy’s recovery proved to be unrelated to large government stimulus and there are reasons to suggest these types of packages can even be a detriment to the very economy they’re created to restimulate.

What does current consumer spending look like?

Over the summer, Canada saw consumer spending levels higher than they were before the pandemic! Just by looking at such numbers, you’d think our economy was running at top speed again. This, however, is not exactly what the experts are saying. On the contrary, they’re suggesting this spending may be a fleeting illusion brought on by government stimulus packages, delayed debt payments and households that are ripping through their savings.

While spending patterns are definitely encouraging, we must be careful to view them with a certain amount of caution. Employment is still low, there is risk of a second wave and direct income support is scheduled to begin expiring soon.

Impacts on the self-storage industry

 Presently, with consumer spending high, even though the pandemic has encouraged many to reevaluate their regular expenses, self-storage doesn’t top the “be rid of it” list. Many consumers greatly need their self-storage space and are staying put, as long as they’re happy with the service. It’s an excellent time for self-storage owners to build and maintain consumer loyalty, in an effort to come out strong amidst this recession (similar to how the industry fared in Canada’s previous recession of 2008-2009).

 With new demand for self-storage space from people who are active in the real estate market, students in limbo, and businesses temporarily downsizing, the potential is great for self-storage to thrive. And because there is evidence to show this, investors are strongly considering entry into the market so that they may take advantage of what appears to be long-term, sustainable returns.