Health Crisis, Yes; Debt Crisis, No

Apr 07, 2020 | Frank Sakellariou


Global fiscal stimulus announcements over the last few weeks have been quite aggressive in both magnitude and the speed in which they’ve been deployed. We have been following these announcements diligently as we believe they will play a key role in the recovery.
Given the fluid nature of current events and the vast amounts of information being reported by the financial media, we have been updating clients in a much more frequent basis through regular emails and Blog Posts. On March 25th, we published COVID-19 Update: For every Action there is an Equal and Opposite Reaction, where we talked about the initial global monetary and fiscal responses to COVID-19, including interest rate cuts, asset purchase programs by central banks, government cash handouts, subsidies, tax/rent deferrals, etc.
Even though these government actions are justifiable and will help soften the economic shocks of COVID-19, this explosion in fiscal spending will lead to more public debt. Eric Lascelles, RBC Global Asset Management Chief Economist, points out that the U.S. government will need to borrow between $2 to $4 Trillion to get through this crisis and Canada’s public debt will rise by another third.
“We will probably be in a higher debt world for the foreseeable future” said Eric in an April 4th interview. “These are truly spectacular numbers”
Although this increase in debt could reduce the rate of future global growth, Eric explains that with a period of sustained low interest rates, we could slowly grow our way out of this.
To learn more about the debt burden of COVID-19 and how it could be managed, please click on the following link to access Eric Lascelles’ 10 minute interview: Health Crisis, Yes; Debt Crisis, No.
This information is not investment advice and should be used only in conjunction with a discussion with your RBC Dominion Securities Inc. Investment Advisor. This will ensure that your own circumstances have been considered properly and that action is taken on the latest available information. The strategies and advice in this report are provided for general guidance.  Readers should consult their own Investment Advisor when planning to implement a strategy.  Interest rates, market conditions, special offers, tax rulings, and other investment factors are subject to change.  The information contained herein has been obtained from sources believed to be reliable at the time obtained but neither RBC Dominion Securities Inc. nor its employees, agents, or information suppliers can guarantee its accuracy or completeness. This report is not and under no circumstances is to be construed as an offer to sell or the solicitation of an offer to buy any securities. This report is furnished on the basis and understanding that neither RBC Dominion Securities Inc. nor its employees, agents, or information suppliers is to be under any responsibility or liability whatsoever in respect thereof. The inventories of RBC Dominion Securities Inc. may from time to time include securities mentioned herein. RBC Dominion Securities Inc.* and Royal Bank of Canada are separate corporate entities which are affiliated. *Member-Canadian Investor Protection Fund. RBC Dominion Securities Inc. is a member company of RBC Wealth Management, a business segment of Royal Bank of Canada. ® / TM Trademark(s) of Royal Bank of Canada. Used under licence. © 2020 RBC Dominion Securities Inc. All rights reserved.