OTTAWA—Canada may be collateral damage in the oil price war and coronavirus slump that have cratered stock markets and sent economic jitters around the world. But as the Trudeau Liberals signal they are ready to spend public money to protect the economy, experts say the federal government has a range of options to ease the pain.

The global economy has sputtered for weeks, as the coronavirus outbreak spread from China to infect tens of thousands of people around the world. With factories shuttered and manufacturing slowed in the world’s second-largest economy, global demand for commodities dropped, pushing down the loonie as the price of oil and other goods started to fall, said Craig Wright, chief economist at the Royal Bank of Canada.

The “proverbial straw” that broke the camel’s back dropped late last week, Wright said, when high stakes oil price negotiations collapsed and left Saudi Arabia at odds with Russia. The former reportedly wanted stricter restrictions on production levels from members of the Organization for Petroleum Exporting Countries (OPEC), as well as Russia, but Russia balked.

In response, Saudi Arabia — which produces oil at a lower cost than other countries — signalled it would slash export prices and flood the market, triggering the stock market rout that erased billions of dollars of wealth and sent Toronto’s key stock market index crashing to its worst single-day drop since 1987.

Thomas Juneau, an international relations professor at the University of Ottawa, said Saudi Arabia’s response is consistent with its “very unpredictable and impetuous ruler,” the Crown Prince Mohammad bin Salman. Even though the country wanted to prop up prices by restricting oil production, Saudi Arabia is now doing the opposite in response to Russia’s refusal to play along.

“This is a very risky move for Saudi Arabia,” Juneau said, pointing to the country’s large budget deficit and plans to reform the Saudi Arabian economy to diversify away from its reliance on oil.

But there is a “market share dimension here,” he added, given how Saudi Arabia typically has the capacity to produce an extra two or three million barrels of oil per day. That means by flooding the market with cheaper oil, they can hurt Russia and other countries to project power on the international stage.

“This is a game that is just out of our league,” Juneau said of Canada. “We are collateral damage.”

While Juneau said there is little Ottawa can do to address the feud that sparked the market collapse, economists point to the array of tools available to the government to minimize the damage to Canadian companies and workers.

“The onus will be on the federal government to step up and support growth prospects,” said Wright, RBC’s chief economist.

“The priority should be to ease the pain.”

The government is already considering some ways to do that, though so far they haven’t committed to any specific measures. On Tuesday, during question period in the House of Commons, Prime Minister Justin Trudeau said the government “will be announcing measures” to help workers, businesses and seniors weather the economic storm. He also pushed back on Conservative assertions that Canada’s $27 billion budget deficit leaves no room for spending to stimulate the economy.

The Liberals point to Canada’s national debt compared to the size of the economy, while the independent Parliamentary Budget Officer recently concluded Ottawa could “permanently” boost spending by $41 billion and maintain sustainable debt levels.

“We have the firepower to be able to invest in our economy, given the coronavirus crisis,” Trudeau said Tuesday.

Kevin Milligan, an economist at the University of British Columbia, said the short term risk is that businesses across the country see revenues drop, making it more difficult to cover debts and payroll. He said the government should consider “emergency payments” to key sectors like tourism and transportation, hit by the coronavirus fears, and the oil sector, which is getting hammered by the drop in prices.

These payments could be made through existing programs so they can be delivered quickly, Milligan added, suggesting tax credits and short-term boosts to payments like old age security and parental benefits would work to help people keep paying their bills in hard times.

“The important thing is timing is of the essence here. This isn’t the time to plan some new big new program,” Milligan said.

Ottawa should also consider making it easier to qualify for and receive employment insurance.

Ahead of this week’s summit of first ministers in Ottawa, Alberta Premier Jason Kenney suggested Ottawa could consider accelerating infrastructure spending in response to the fall in oil prices. He also called for Ottawa to beef up federal transfers designed to make up for lost provincial revenues during economic slumps — something Finance Minister Bill Morneau has signalled the Liberals are willing to consider.

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Milligan said Kenney’s proposed measures wouldn’t help solve the immediate crisis, but could soften the blow of a more entrenched economic downturn if Canada stumbles into a period of slow growth. Government bond yields have dropped below the rate of inflation, meaning Ottawa can cheaply borrow money to spend on infrastructure as companies like Cenovus, a Calgary-based oil giant, slash spending in the face of the downturn.

For Wright, it is clear this week’s stock crash means Canada’s economy is entering a troubled patch. His bank was working Tuesday on a revised forecast for growth this year, down from 1.4 per cent to 0.6 per cent.

“My guess is everybody will be taking growth down,” he said, describing how the oil price shock is happening against a backdrop of the wider slowdown from the coronavirus outbreak.

“It’s not an Alberta, Saskatchewan, Newfoundland story,” he said. “It’s a Canada story.”

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