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Morneau insists economy can handle coronavirus as economist urges fiscal caution

COVID-19: The economic challenges posed by the virus
WATCH: COVID-19: The economic challenges posed by the virus

Finance Minister Bill Morneau insists the Canadian government is in a good position to respond to economic shocks from the new coronavirus.

But one economist warns his calculations may be taking too “narrow” a view of the situation.

READ MORE: Coronavirus will ‘undoubtedly’ hit Canadian and global economies, says Morneau

In an interview with The West Block‘s Mercedes Stephenson, Morneau said part of the reason the government feels like it can respond well to what he called the “very real potential challenges” of the coronavirus spread comes from strong employment numbers and its ratio of debt to GDP.

“I think what people need to know is that, you know, we have a strong fiscal position, so we’re prepared in terms of the actual health risks, but we’ve a strong position fiscally so that we can actually take measures as needed as the facts come out,” he said.

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“We’re going to be prepared to announce them when and if that comes. The good news, again, is that we have the capacity to do that.”

Morneau also acknowledged last week that officials are changing their risk adjustment provision for the upcoming federal budget in response to COVID-19, which has caused shock waves through financial markets around the world over recent months.

READ MORE: Morneau says government support for quarantined Canadians is in the works

But Brian DePratto, director of economics at TD Bank, urged more caution.

“I think he’s taking a relatively narrow view of the economy,” he said of Morneau’s comments.

“If you take a broader picture, we had a very soft end to last year, business investment sort of struggling to gain traction for a number of years now. Looking at recent developments – rail blockades, weather, other factors – already [it’s] a soft start to the year before we even talk about coronavirus. So I think we don’t really have a lot of growth buffer to work with here in Canada.”

DePratto noted that while Morneau is right that Canada is in a better fiscal position than many of its allies, that doesn’t mean it has much in the way of economic wiggle room. As a result, if the government wants to put out new programs to help reduce the impact of the virus, it may need to make changes elsewhere.

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“It’s a little bit of a balancing act,” he said.

“They’re going to be doing a pros and cons kind of analysis and we could see some reshuffling of the cards.”

Coronavirus outbreak: Federal government to offer support for quarantined Canadians impacted by COVID-19
Coronavirus outbreak: Federal government to offer support for quarantined Canadians impacted by COVID-19

While Morneau wouldn’t say what measures the government was considering, he said there are a number of options that have been used in the past.

He also hinted last week that the focus would be on helping people who find themselves in quarantine but that right now, the impact of the spread of the virus in Canada is still not clear.

READ MORE: Ontario reports new COVID-19 case, patient used transit while symptomatic

While Health Minister Patty Hajdu has called the virus “low-risk” for Canadians, the country now has more than 50 confirmed and presumed cases in four provinces, and the federal government is boosting cash available for research from $7 million to $20 million.

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Health officials in B.C. also raised questions on Friday that the province may have its first case of community spread of the virus, meaning someone there got it from another person rather than from travel abroad or contact with known cases.

The U.S. has also barred entry to Canadian travellers who have recently been in several of the countries hit hardest by the outbreak, raising more questions about what the impact of a more extensive border crackdown could mean for businesses and Canada’s export-reliant economy.

Morneau said his job is to consider all possibilities, and that’s what he’s doing.

DePratto added it’s tough to tell right now what the extent of the economic impact will be.

“We’re not talking about a recession quite yet but really a bit of a grind.”

The economic impact of the coronavirus, explained
The economic impact of the coronavirus, explained