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Macdonald-Laurier Institute

Time to turn off the stimulus taps? MLI’s Leading Economic Indicator

July 14, 2021
in Domestic Policy Program, Economic policy, Latest News, Leading Economic Indicator, Philip Cross, Releases
Reading Time: 2 mins read
A A

OTTAWA, ON (July 14, 2021): The Macdonald-Laurier Institute’s Leading Economic Indicator (LEI) has once again posted growth. This marks 11 consecutive increases in the LEI in as many months, reflecting a clear trend toward growth for the second half of 2021.

“Steady economic growth from widespread strength across a range of sectors should be cause for some optimism,” says LEI author and MLI Munk Senior Fellow Philip Cross.

“With vaccinations increasing in pace, lockdown measures easing, and generally things returning to some semblance of normalcy in Canada, the economy is also getting back on track.”

Composed of 10 components, the LEI is a tool designed to predict Canada’s future economic growth and track changes within Canada’s business cycle. Rising to 1.4 percent growth, this latest LEI update reflects data from May. This is the 3rd consecutive month of LEI growth above 1.3 percent.

Just like in April, out of the 10 components, eight increased, two were unchanged, and none declined. Growth was thus broadly-based and sustained from previous months.

Commodity prices and the Toronto stock market were clear winners. These two factors appear to be driven in large part by improving global growth. Additionally, consumer sentiment has risen in tandem with the reopening of the Canadian economy. The housing market and natural resource sector both remain strong.

“Barring a resurgence of COVID-19 and associated lockdown measures, Canada is poised to enjoy the continued rapid recovery of the economy through the rest of 2021,” notes Cross. “In this favourable economic position, it is worrying that the government is keeping the fiscal and monetary stimulus taps open with unprecedented levels of spending and extremely low interest rates.”

While the economy is largely recovering, some industries are lagging behind. According to Cross, “it is readily apparent that broad monetary and fiscal stimulus is of limited use in an economy where most industries are prospering but a select few continue to lag.”

Compared to the 2008-2009 financial crisis, the pandemic seems to have had a much less lingering impact on the macroeconomy, and growth is rebounding quickly in most sectors. “Therefore, maintaining a high level of stimulus risks raising demand above what the economy can supply without fuelling higher prices,” writes Cross in MLI’s latest Quarterly Economic Report.

For more information, media are invited to contact:

Brett Byers
Communications and Digital Media Manager
613-482-8327 x105
brett.byers@macdonaldlaurier.ca

Tags: economic policyeconomyLeading Economic IndicatorLEIPhilip Cross
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