Confidence is an essential element of any economic system. For the most part, it operates in the background: You get it, and forget it. Lose it, and the fallout is everywhere: A loss of confidence sells, spreads and is self-fulfilling—it has actually in the past wreaked havoc with the economy and its financial system in cases where there was no real basis for the loss. With all the uncertainty swirling around today, is now one of those moments to worry about confidence?

The photos don’t lie: Depression-era snaps of lineups outside of banks, shocking reactions to the stock market plunge and the resulting unemployment and soup-kitchen queues are the real fallout of a confidence meltdown. The dynamic is the same today. We saw it in microcosm at the outset of the pandemic. Worried that food supplies would run short, just about everyone stocked up on essentials, creating shortages that proved to be so unnecessary. We lost confidence in the distribution system, and demonstrated that as advanced as we are since the Depression, we can still see very similar reactions and fallout.

There’s a long list of current issues that could test our confidence: Multiple waves of the pandemic, high corporate and public debt, geopolitical turmoil, neo-protectionism, years of substandard, post-global financial crisis growth; populism and polarization of views; and likely a few other situational factors.

Against that, there’s the numbers. Strange as it may seem, confidence is riding high in the world’s top economy. The latest insights from the Conference Board of Canada on consumer confidence have it at pre-pandemic levels, having made up the entire loss due to COVID-19 steadily since the beginning of this year. As a measure of business confidence, the ISM Composite Index is bouncing around, but in a range well north of early 2020 levels.

Scudding across the pond, we see the same—consumers there have leapt up to pre-COVID-19 levels following a March-June rally that has held through August. Given hot dissent over policies and an economy that has taken longer than America’s to find a sure footing, this is a remarkable recovery. European Union business confidence hasn’t just returned to previous levels; it has soared beyond the January 2018 peak. Impressive, by any measure.

Confidence in Canada hasn’t been left behind. Here, both business and consumer confidence are soaring. The Bloomberg Nanos Canadian Confidence Index might be slipping on a weekly basis, but it’s at levels higher than anything we have seen since at least early 2014. Same goes for the CFIB Business Barometer Index. What it says is that even a trade-dependent economy like ours, with all its concerns about global supply chains, soaring shipping costs, geopolitics and trade’s uncertain future, we have a positive view of what’s coming. How un-Canadian of us!

So, have we lost it, or are there good reasons for the optimism? Consumers have a good few reasons to be happy. First off, demand fundamentals are strong. Second, they have lots of spare cash in the bank, thanks to COVID-19 limiting a lot of consumption options. Third, there’s lots of government stimulus still in the system, bit fiscal and monetary. Fourth, those with wealth portfolios are likely very happy with recent stock market performance. The same factors feed into business sentiment—along with the fact that businesses are adapting to the disruption, and generally the subsequent pandemic waves have a more muted impact on overall performance.

At this point, we could make a grave error. Satisfied that confidence is good, we could busy ourselves with other things. Yet we know that the economic and political situation is tenuous, and if there’s a key trait of confidence that’s alarming, it’s that it can be so fickle. As such, ensuring that we stay the economic course is critical. Any serious interruption at this point could easily undermine all that has been done to get us to the point that we’re currently at. It has taken hard work and intense co-ordination to get us here; transitioning to a more regular, private-activity-led growth cadence is essential, and it’s not automatic—it’ll still take lots of effort to manage the handoff.

The bottom line?

With plenty of reasons to be gloomy, we’re in generally, a pretty upbeat world. As we return to activity that’s more private-led, smoothing the transition is important to maintaining the confidence that will see us through.


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