Ford government warned not to panic over recession fears

Economists are urging Ontario’s Progressive Conservative government to avoid hitting the panic button as rising inflation increases the risk of an economic recession.

The annual inflation rate shot up to 7.7 per cent in May — the highest level in more than four decades — thanks to a steep rise in gas prices, according to Statistics Canada, leading to new concerns that Canada’s economy could be headed into a recession.

Read more: Soaring food inflation has 72% of families with kids worried, Ipsos poll finds

“We’re talking minor recession,” said Peter Dungan, an economist with the University of Toronto’s Rotman School of Management. “Ontario is going to feel it somewhat worse than Alberta, where you’ve got the oil sector booming along because of the high price of oil.”

Dungan told Global News that while the province’s housing market could see the worst of the economic contraction, the downturn could be more evenly spread out, unlike the recession of 2008, which impacted Ontario’s automotive manufacturing industry, triggering a provincial bailout.

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An economic shock could pose a huge challenge to Premier Doug Ford as he embarks on a second term in office. Ford’s first mandate was impacted by the COVID-19 pandemic, which led to a government-induced recession as political leaders attempted to prevent the virus from spreading.

Read more: Ontario Premier Doug Ford consults with Christine Elliott on new cabinet

While multiple levels of government underpinned the economy with billions of dollars in financial aid, Dungan is warning the government against using a similar strategy to combat the current affordability crisis.

“That’s a tricky situation for the provincial government,” Dungan said. “They would be tempted to try and do something to offset the recession.”

Dungan said, however, the Bank of Canada‘s efforts to curb household spending by increasing interest rates could be stalled if the Ford government introduced a stimulus package in 2022.

“If you shovel more money in, you’re undoing what the Bank of Canada is trying to do in slowing the economy down. It becomes a significant conflict then.”

Instead, Dungan suggests targeted measures designed to help low-income workers make ends meet.

The Ford government has already passed legislation that would cut the provincial gasoline tax by 5.7 cents a litre beginning in July, while the recent provincial budget — which is set to be reintroduced and passed this summer — broadened a tax credit for low-income workers.

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The government did not make a spokesperson available to speak about this issue.

Ontario’s NDP is cautioning the government from going in the other direction and using a recession as a context for budget cuts.

“This government has never truly understood that we can’t cut our way out of an economic crisis,” said the NDP’s finance critic Catherine Fife. “If you cut those valuable services … that actually compromises economic confidence in the province of Ontario.”

Dungan said while the government doesn’t need to cut the budget or raise taxes to survive an economic downturn, if the government chooses to trim the budget, it should adhere to one principle.

“Don’t hurt people,” Dungan said.

Click to play video: 'Exclusive Ipsos polling shows who is being affected most by rising inflation' Exclusive Ipsos polling shows who is being affected most by rising inflation

Exclusive Ipsos polling shows who is being affected most by rising inflation

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