CERB’s Impact on the Canadian Economy

CERB may have raised investors’ risk tolerance and household savings. Artizia Inc. (TSX:ATZ) is a top pick for 2021.

| More on:

The Canadian Emergency Relief Benefit (CERB) was one of the most aggressive stimulus programs in the world. When the global economy dipped into recession and families were confined to their homes, the Canadian government stepped in with a record-breaking handout to keep millions of citizens afloat. 

Now, after the program has been wound down and the economy is on a path to recovery, it’s time for investors to assess the long-term effects of this stimulus program. Here are the top three macroeconomic impacts of the CERB program. 

CERB deficit

The government estimates that the CERB program cost a total of $71.3 billion. Coupled with all other benefit programs and a shortfall in tax revenues over the past year, the government’s fiscal deficit could hit $381.6 billion, or 17.5% of gross domestic product. 

That’s a 10-fold jump from the previous year. Eventually, the government will have to tackle this deficit. While there’s no formal plan yet, investors can expect the government to cut back on spending, raise taxes, and potentially devalue the Canadian dollar to reduce the deficit. 

These moves will have an impact on corporate earnings and the stock market. Companies with sales spread across the globe could be better positioned for a devaluation in the Canadian dollar. 

Record-high savings

With cash flowing in from CERB and the economy shut, Canadian households have built up record-high savings. The savings rate hit 14.6% in the third quarter of 2020. Double-digit savings haven’t been seen for decades. 

As the economy reopens and the vaccination drive gains traction in the months ahead, this pent-up buying power could be unleashed. Consumer products and stocks could surge as people go on a spending spree. Travel, leisure, cosmetics and retail stocks could be the top beneficiaries of this trend. 

CERB risk tolerance

The government’s widening of the safety net was unexpected last year. However, such a move will be expected in the next crisis. That means investors should consider raising their risk tolerance and deploying cash in high-growth stocks with potentially bigger payoffs. 

Top pick

CERB’s impact on savings and risk tolerance could make high-growth stocks like Aritzia (TSX:ATZ) more appealing. The brand saw sales dip last year, as consumers cut spending on clothes and accessories. This year’s reopening could boost demand for the company’s products significantly

Aritzia’s expansion into the United States limits its exposure to the Canadian economy. If the Canadian dollar depreciates, U.S. dollar sales should offset the loss. 

The stock is trading at just 3.9 times sales. That makes it one of the most reasonably priced growth stocks on the market. Keep a close eye on this one for 2021.

Bottom line

CERB may have raised investors’ risk tolerance and household savings. The program could have an impact on the value of the Canadian dollar. This could benefit high-growth stocks with an international presence. Clothing brand Aritzia is a top pick for 2021. 

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Vishesh Raisinghani has no position in any of the stocks mentioned.

More on Investing

GettyImages-1352607170 (1)
Tech Stocks

Why Shopify Stock Is Skyrocketing Today

Shopify published its Q3 report this morning, and it gave investors plenty to be excited about.

Read more »

Hand Protecting Senior Couple
Dividend Stocks

3 Blue-Chip Stocks So Safe Canadians Can Hold Them Until They Die

Canadian National Railway (TSX:CNR) is a stock worth owning for life.

Read more »

stock research, analyze data
Dividend Stocks

14.7% Dividend Yield? Buy Up This Passive-Income Stock in Bulk!

That dividend yield is high, but it still comes with some strong reasons to consider the stock outside of a…

Read more »

calculate and analyze stock
Stock Market

Chewy vs. Pet Valu: Which Growth Stock Is a Better Buy?

Chewy and Pet Valu are two beaten-down pet stocks that trade at a reasonable valuation in November 2024.

Read more »

Forklift in a warehouse
Investing

Canadian Industrial Stocks to Buy Now

Canadian industrial stocks offer a comprehensive variety of safety, dividend, and growth combinations. This ensures that all kinds of investors…

Read more »

tsx today
Stock Market

TSX Today: What to Watch for in Stocks on Tuesday, November 12

Sliding metals prices amid a strengthening U.S. dollar could continue to weigh on TSX mining stocks today.

Read more »

rising arrow with flames
Investing

2 TSX Stocks With Market-Beating Potential

Fairfax Financial Holdings (TSX:FFH) stock has been soaring of late but remains cheap from a valuation perspective.

Read more »

Canadian Dollars bills
Dividend Stocks

1 Dividend Stock That Could Create $5,000 in Tax-Free Passive Income in 10 Years

Here's why Fortis (TSX:FTS) certainly looks like a top dividend stock with outsized total return upside worth buying right now.

Read more »