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8 May

CIBC Deputy Chief Economist Benjamin Tal on the Economy and What to Expect


Posted by: Garth Chapman

I have followed CIBC World Markets Managing Director and Deputy Chief Economist Benjamin Tal for nearly 20 years. He has a solid track record. He’s what he’s saying about what to expect going forward in 2020 and beyond.

On the Economy:

Multifamily, office and industrial real estate will emerge from the COVID-19 crisis as winners, while losers will include the energy, transportation and hospitality sectors.
“It’s not a recession, it’s not a depression, it’s something in-between. It’s basically a frozen economy.”
Tal anticipates governments continuing to play a large role in the economy, as relief payments to get people through the crisis evolve into a more permanent universal basic income system.
Many companies will start thinking less in terms of profits and more in terms of resiliency.
More medical-related products and other essential goods will be produced domestically and there will be a move from “just-in-time” to “just-in-case” inventory systems.

On Real Estate:

Tal said real estate valuations being made now have very little value and people should be careful about making decisions based on the current economic situation. “I think the damage to the real estate market isn’t as significant as perceived.” Tal expects the Canadian economy to emerge from the recovery phase in 2022 or 2023 and that “the demand for real estate will remain very strong.”
The Canadian rental housing market is not in danger of collapse. Tal said the rent payment rate among those low-income earners was higher than for Canadian renters in higher income brackets. He attributes this to many low-earners now receiving a $500 weekly Canada Emergency Response Benefit payment from the federal government, which they’re using to pay rent.
The number of immigrants and non-permanent residents in Canada will decrease this year. A large percentage of those people are also renters, which will decrease demand for rental housing. Tal expects that to be balanced out somewhat by a reduction in supply due to a lack of apartment building completions, so the vacancy rate increase won’t be dramatic.
Commercial real estate sectors:
“But at the same time, I think that those who predicted that this market will collapse are overstating the damage. I don’t think that the move towards people working from home will be as dramatic as perceived, given the productivity aspect.”
“High-quality retail will remain in demand, and in fact it will improve,” said Tal. “I see significant damage to low-quality retail. This means that you will see e-commerce taking over.”
Tal didn’t address industrial real estate, beyond saying he’s still bullish on the sector.
Benjamin Tal’s 60 talk is here (you have to register to listen)