Delta variant threat to the global economy means fiscal prudence may take an election back seat

This week, the world's most influential central banker, U.S. Fed Chair Jerome Powell, called the delta varianta "wild card" for the global economy.

While there are warning signs thatthe growing impact of thisnew, more contagiousstrainmay play a role in the upcoming Canadian election, economic observers say that by itself, a slowdown during thecampaign may not have theeffect it might have had in the past.

As the health of Canadians takes centre stage in the minds of voters,and as parties take turns proposing their own stimulus measures, somesay fiscal conservatives may have more trouble rousing voters this time around.

That is not to say economic issues related to the pandemicsuch as the cost of housing, a 10-yearhigh for inflation, business shutdowns and the effect of school closings on working parents won't also become election issues.

Same goals, different methods

A lot of the difference between the federal parties is less in their economic goals for each, that includeslong-term pandemic recoverythan inthe details of how they get there, said Michael Smart, a University of Toronto economist and founder of thethink-tank Finances of the Nation.

"It's a great time to be a policy nerd," he quipped.

Voters don't always read the policy fine print. And in a global pandemic, it's not onlythe virus and its variantscomingfrom outside Canadaso too do many of its economic impacts.

A surge in Canadian inflation, caused by the kind of stimulus all the parties are supporting,is hard to separate from theeven-higher inflationseen in the U.S., our southern neighbour and biggest trading partner.

The Bank of Canada always insists it sets rates independently, based on the needs of the Canadian economy. But a sudden jump in rates to quell inflation would inevitably affect the loonie, leading to a potentially devastating effect on Canadian exports.

While Canada's high vaccination rate may be helping the country avoid the worstof a delta-drivenfourth wave, there are already signs the variant's spread in places such as the U.S. and China is affecting markets and supply lines.

Reports from the U.S. blamed a sharp fall in retail sales on the spreading delta variant there. And the International Energy Agency has warned that a global slowdown caused by the contagious variantwill lead to a decline in oil demand a crucial measure for Canadian exporters.

Productions lags

The Wall Street Journal reported this week that "repercussions from the delta variant of COVID-19 are starting to ripple across companies," from higher staff costs, to lower potato chip production and lower profits.

And production and transportation bottlenecks are showing few signs of easing, leading to higher producer prices and thus higher consumer inflation.

"Public health shocks come from abroad.So do economic shocks," said Smart. "Should Canadians hold politicians responsiblefor howthe economy is performing [right now]? Probably not, to be honest. But will they? I don't know."

One COVID-19-related economic issuethat commentators say could well have an impact on how people vote is business shutdowns.

While many small businesses have lobbied against some public healthmeasures that they saw as preventing them from earning a living, a number of small business owners are particularlyanxiousto avoid new shutdowns at all costs, said Shadi McIsaac,CEO ofRBCsubsidiary Ownr, which helps new companies register and incorporate.

That may be why a growing number of businesses are now welcoming vaccine mandates and vaccination passports.

"Almost every entrepreneur who lost a customer and that was upwards of 90 per centwas still worried about further lockdowns and economic uncertainty that was looming ahead for them," said McIsaac.

Rather than worrying about how the federalgovernment will pay for all the bailouts so far, businesses are still focused on the danger of a fourth waveand whether they can survive it, she said.

"What we heard from business owners is that they are going to be listening very closely on each party's policy and perspective,both from a financial standpoint so what are the funding and grants that are coming forward to support entrepreneurship and small business community;and what's the sentiment [ofeach] around further lockdowns."

As Smart explained, there are broadly two considerations for the economy during this election and both involve more stimulus. One is having a response ready in case the economic recovery falters, whether due to a new variant or some other cause;the other is to recharge the economy once the threat from the virus finally passes.

Sales tax holiday

Whether the stimulus is in new spending, or as the Conservatives have proposed, a sales tax holiday to drive immediateconsumer spending,that stimulus will likelyend up circulating in the Canadian economy and will pay for itself in higher future tax revenues, said Smart.

David Macdonald, senior economist at the Canadian Centre for Policy Alternatives, agrees that balancing the budget will be a very theoreticalconsideration in this election.

"I think no matter which party you are, there's no realistic way you're going to get to a zero deficit, probably, in the next three years," said Macdonald.

Beyond retail closures, Macdonald pointed to what could be an even more politically contentious kind of lockdown:Schools, whichwill open well before voting day on Sept. 20.

Another round of school closures would not just annoy long-suffering parents, he said, butwould have an important economic impact, as workers are forced to stay home to supervise kids, many of whom are unvaccinated.

If that happens, he said, the question is where the blame willland for voters.

"I think really the biggest economic issue right nowis how we get through the fourth wave," said Macdonald. "How do we support workers and businesses,just the way we've been doing for a year-and-a-half?"

Follow Don Pittis on Twitter @don_pittis