This is the first in a three-part series exploring the effects of the global economic downturn on Toronto. Next week, a community activist explains how the city’s most vulnerable residents might fare as the crisis worsens.
Photo by Paulo Barcellos Jr.
Although the economic crisis dominating headlines in recent months has done much to cause fear among Torontonians, so far it has not dramatically affected day-to-day life in Canada’s largest city. Walid Hejazi, associate professor of international business at the University of Toronto’s Rotman School, thinks that that is likely to change.
According to Hejazi, Toronto’s status as a global city could turn into a weakness as the downturn progresses. “Toronto is one of the most international cities in the world,” he said. “So essentially the Toronto market, because we are so extensively integrated into the global economy, it’s really hard to insulate yourself.”
As Hejazi sees it, the global recession’s effect on Toronto could be severe. Toronto’s status as the nation’s business capital could become a liability, with slowing economic activity nationwide directly affecting corporate head offices housed across the GTA. The city is also the hub of Canada’s financial sector, which Hejazi says will be dramatically affected by a reduction in access to credit and slowing economic activity. As for the already struggling manufacturing sector in and around the city, he believes that the long-term shift of operations to Asia currently taking place will be accelerated by the financial crisis, resulting in more job losses here at home.
Toronto’s tourism industry is another likely victim of a sustained downturn, although Hejazi notes that the falling Canadian dollar and continued terrorism fears mean that “Canada looks like a more attractive place to go” for Americans who might otherwise have considered travelling to Asia, potentially tempering the decrease in visitors to the city. Finally, Hejazi expects that construction and housing starts will be further affected by a reduced access to credit.
But even though the situation seems bleak, Hejazi says that Toronto has one major advantage over other cities. “The one big benefit we do have is we have a highly diversified economy, [so] not all sectors are hurt to the same extent. That might mitigate some of the effects of this downturn. But the end of the story is there’s really nowhere to hide.”
As for how Toronto and Canada can better prepare themselves for future downturns, Hejazi says that both individuals and the government “have to be always prepared for something negative to happen.”
“[Prime Minister Harper’s] cuts to the GST, taking our surplus from $10 billion down to $1 billion, in hindsight was a strategic error because no one anticipated anything to this magnitude. So now he’s forced to spend to go into a deficit. And certainly at the individual level, people that have their credit cards maxed out, people that are not saving for a rainy day, people that are now at risk of losing their job and not being able to find another one, drives home the point that you just don’t know when there’s going to be a big movement against you.”
Hejazi also believes that governments “have to open up the purses, because people are going to be hurting and you really are going to need to be able to help those people.”
Finally, he notes that although the effect of a recession on GDP, income, and other economic measures is well known, “the other cost that we often don’t do a good job of measuring is the whole impact on families, on stress and suicide and all that. So governments really need to understand those as well and reach out and try to help people.”
In a time of economic and political turmoil, that’s advice our leaders in Ottawa would do well to remember.
Bottom photo courtesy of Walid Hejazi.