Beata Caranci, Chief Economist and Senior VP at TD Bank Group, in Toronto on Nov. 16, 2021.Tijana Martin/The Globe and Mail
As the economy slows, interest rates reach a crescendo and the air comes out of inflation, there’s a growing confidence that we’ll actually pull off that elusive soft landing that economists talk about. But Beata Caranci warns that once we touch down, we may be stuck on the tarmac longer than we expected.
Toronto-Dominion Bank’s chief economist forecasts one of the smoothest paths on Bay Street for the anticipated 2023 slowdown: only a single quarter (the third) dipping into negative territory. But in an interview last week, she warned that what goes down softly might not come back up for quite some time.
“We focused on duration of the cycle,” Ms. Caranci said, as we chatted in her office in the heart of Toronto’s financial district.
She and her TD colleagues predict that gross domestic product will grow a thin 0.7 per cent in 2023 – and an even thinner 0.4 per cent in 2024. Effectively, she anticipates two years of near-recession.
The crux of her argument lies in the sharp rise in interest rates from the Bank of Canada, which will strain Canada’s heavily indebted consumers and ultimately force them into a protracted period of debt reduction – or “deleveraging,” as economists call it. She warns that this process could weigh on growth long after supply and demand return to a healthier balance and inflation retreats.
“When you look through other countries’ experiences, a deleveraging cycle is not a two-quarter phenomenon. It tends to be multiyear,” Ms. Caranci said. “That’s how we were trying to think through it.”
At least economic forecasting looks set for a much less wild ride heading into this downturn than the past one. In the uncertain and fast-changing weeks and months after the economy plunged into recession in 2020, Bay Street’s economists were rewriting their forecasts every couple of weeks. Even well into 2021, there were wide disagreements on where the economy was headed and how quickly.
Ms. Caranci said the experience of the past three years has taught her to be more “balanced” in her thinking and more open to other perspectives. During the pandemic, she said, the bank’s clients were best served with even-handed information on the economy at a time when many of them were cut off from their usual daily office communications, and extreme views were at a fever pitch.
“I don’t feel like I have the luxury to be bombastic; I really have to think about all elements, all angles.”
She feels she’s become particularly more understanding toward government policy makers, traditionally a popular target among economic commentators and second-guessers.
“I found I was much more [empathetic] in terms of the ambiguity they faced,” she said. “Even when they were doing economic shutdowns – how do you think about the risk-management side of that? That was a new area of exploration, where I was putting myself much more in the standpoint of what governments were facing at that time, as opposed to the markets.”
That was evident in a report Ms. Caranci published last month, reviewing the Bank of Canada’s slow response to the threat of inflation as the economy surged out of the COVID-19 recession. The very title of her report – To Err is Human, To Forgive is Divine, To Evolve is Necessary – speaks to an approach of trying to understand what was behind central bankers’ thinking in 2021.
She also pointed out that financial market participants encouraged the central bank to provide explicit forward guidance on how long interest rates would stay at their bottom – only to criticize the consequences of that guidance.
“Those who live in glass houses should not throw stones,” she wrote.
When Ms. Caranci became TD’s chief economist in 2015, she had the distinction of being the only female chief economist among Canada’s Big Six banks. Nearly eight years later, she’s still the lone woman. Nor are there many waiting in the wings to succeed her and her contemporaries when they depart; none of the banks has a female deputy chief economist, either. (The closest are Cynthia Leach, one of three assistant chief economists at Royal Bank of Canada; and Rebekah Young, one of three vice-presidents under senior VP and chief economist Jean-François Perrault at Bank of Nova Scotia.)
“If I just look at the Canadian market … when I look around, I feel like there are more female economists,” she said, noting that her economics team at TD is now about 40-per-cent women. “Where they’re missing is at the top ranks.”
“The hope is that that development process continues,” she said. “It’s really about getting to that stage … that’s still the missing piece.”
Meanwhile, Ms. Caranci acknowledges that she feels a considerable responsibility as one of the few high-profile female economic voices in the country – and considerable demands.
“Sometimes you feel like [TD chief economist] is your role, and then you’ve got this other role on top of it. It’s something that maybe your male counterparts don’t have to address,” she said.
“Often I’ll get asked to participate in an event or a panel because [the organizers] want to have a more diverse group and hear from different voices, and they say, ‘What female economist can we bring in? Oh, Beata!’ You just get inundated,” she said. “That speaks to the lack of breadth in our own field, that we need to improve on.”
“There are a lot of good events, but you just can’t wear yourself down and try to make everybody happy.”