You call this an economic recovery?

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It’s now clear that what policy makers hoped would be a U-shaped recession has transitioned into a fitful period of starts and stops resembling stop motion animation.

Tentative steps toward reopening the North American and European economies have run up against regionalized outbreaks of COVID-19, leading governments in some European countries and U.S. states to impose renewed lockdown measures. Where businesses have reopened, continuing fear of the coronavirus has kept many customers away from restaurants and shops, while major swaths of the economy continue to operate far below prepandemic capacity levels.

After an uptick in June, U.S. hotel and airline reservations are falling again, plunging the travel and hospitality sector into an even deeper crisis. The Canada-U.S. border has been closed to non-essential travel for four months. There is no guarantee it will be reopened after the current one-month extension ends on Aug. 21.

With six weeks to go before Labour Day, governments in Canada and the United States have yet to establish firm directives for a return to classroom learning. That is preventing many parents and caregivers with young children from returning to the job market and leaving those with jobs managing elevated stress levels that affect their productivity and mental health.

While retail sales surged in May and June, the increase appears to have been driven by pent-up demand as bricks-and-mortar stores and car dealerships reopened and the extraordinary aid that governments across the developed world have provided to the jobless. Programs such as the Canada Emergency Response Benefit and extended federal unemployment benefits in the United States have left many recipients better off financially than when they were working.

The $2,000-a-month CERB and the US$600-a-week federal unemployment top up in the United States, which is paid out on top of state jobless benefits, are both set to expire soon. The total or partial end to such income supports would deal a devastating blow to many households.

And yet, the word “recovery” keeps getting batted around to describe the current economic situation, even though the evidence suggests things may get worse before they get better.

“Until a vaccine or effective treatment for COVID-19 is found, the pace and trajectory of economic recovery will largely depend on Canada’s prolonged ability to contain the spread of the virus and limit resurgence,” Finance Minister Bill Morneau’s July 8 fiscal snapshot stated.

That is only partly true, however. Ottawa’s fiscal snapshot, which forecast an unprecedented $343-billion deficit for the 2020-21 fiscal year, paid only lip service to the disruption in global trade that has left much of Canada’s industrial sector fearing for its future.

Most durable goods manufactured in Canada are exported. Hence, as the U.S. economy stalls or falls backward, it is inevitable that Canada’s will, too. No matter how successful this country is in controlling new coronavirus infections, declining trade flows will continue to weigh heavily on Canada’s export-dependent economy. Canada’s factories were operating at just 62.8 per cent of capacity in May. While up from a 54 per cent capacity utilization rate in April, the rate remains far below the prepandemic level of about 80 per cent.

Without a sustained rebound soon, many manufacturers that have temporarily reduced capacity will begin to permanently eliminate it by cutting shifts or closing plants. Ottawa has yet to put forward a plan aimed at pre-empting a permanent contraction in the goods-producing sector, even though many other countries are already moving to capitalize on an expected reshoring of manufacturing activities that had moved to China and the developing world in recent years.

As for the oil sector, which lifted Canada out of the last recession, it is down for count for the foreseeable future. Instead of leading the national economy, Alberta could become a drag on it.

It remains to be seen whether Mr. Morneau’s recently announced reform of the Canada Emergency Wage Benefit will lead to the desired results of a surge in hiring by employers. What is clear is that the Canadian economy will be dependent on extensive and prolonged government support that risks sending this year’s federal deficit even higher than Mr. Morneau predicted.

The Bank of Canada continues to enable Ottawa’s largesse by buying up record amounts of federal debt in a risky experiment that may look like it’s working, for now, but leaves plenty of unanswered questions about how the bank intends to manage market expectations as these temporary measures turn into semi-permanent ones that last for years.

The bank said on Tuesday that it would begin to reduce purchases of provincial and federal debt with maturities of less than 12 months, though such instruments have accounted for only a small proportion of its overall bond-buying program. By promising to intervene if necessary, the bank has persuaded investors that it is safe to hold such debt.

Still, sooner rather than later, the markets will need some signal from Ottawa that it has a plan for reducing the federal debt, which is set to hit $1-trillion this year, or nearly 50 per cent of gross domestic product. Combined with rising provincial debt levels, it would not be surprising to see Canada’s total net debt-to-GDP ratio surpass 100 per cent within the next couple of years.

Whatever you want to call the state we’re in, just don’t call it a recovery.

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