For those of us who have kept a close eye on forecasts for the impact of COVID-19 on the global and Canadian economy, it is instructive to watch how much the outlook keeps changing.
Just over a month ago, many economists were anticipating the brunt of the disease would fall on Chinese commerce and that the global effect would be passed on due to a slowdown in that economy to 5.3 per cent for all of 2020, as one bank forecaster told me at the time.
Now that China’s problems have swept the world, sending stock markets into turmoil, many early forecasts seem laughably optimistic. But even now, with rare exceptions, predictions for the economy range from moderately gloomy to what may be wishful thinking.
The often-bleak David Rosenberg, who now runs his own independent research company, concedes U.S. Federal Reserve’s massive cash injection may avert an economic depression. For Rosenberg, that’s positively cheery.
The current index of economic policy uncertainty is like nothing we have ever seen before and we have to say that in a strong sense: not like 2008, not like 9/11, not like 1997/8 or 87. <a href=”https://twitter.com/SoberLook?ref_src=twsrc%5Etfw”>@SoberLook</a> <a href=”https://t.co/jI162Fm0hn”>pic.twitter.com/jI162Fm0hn</a>
But uncertainty remains extraordinarily high and with such a range of views each of us must either pick among the forecasts or make up our own. With that in mind, here are a few considerations to help you think about what the future may hold.
1. Debt accumulation
While a new round of emergency rate cuts, income support and mortgage deferment plans should help heavily indebted Canadians from hitting rock bottom, it is inevitable that many will go further into the hole. There are reports that credit card companies are already worried as consumers are using plastic to replace lost income.
All that raises questions about whether, once the illness is past, consumers can resume their role as debt-fuelled motors of the North American economy. Meanwhile, governments are accumulating massive new debts of their own. Highly leveraged businesses also face strain.
2. Business survival and recovery
Overall, recessions hurt people, but some economic theory says that capitalism actually needs periodic downturns to refresh itself through creative destruction. Weak “zombie” businesses and sunset industries are finally killed off, clearing the way for healthier, younger or more efficient firms, making the whole economy stronger in the aftermath. But the adjustment process is far from instant and can be painful for displaced workers.
One of the recent bright spots in the economy has been low unemployment, but a sharp rise in U.S. jobless claims made headlines last week, and this week’s upcoming U.S. job numbers will tell us more. Canada’s come on the Thursday before Easter.
Travel restrictions have already stopped immigration and despite objections from refugee advocates, the border has also closed to asylum seekers. Restrictions of weeks or months will lead to a backlog of immigration cases and as the economy works through its recovery governments, may face pressure to limit the total flow of immigrants.
One reason for real estate fears in Alberta is that few parts of the Canadian economy have been as battered by the COVID-19 crisis as the oil and gas sector, where the cost of a barrel of oil sands crude has fallen below price for the Barrel of Monkeys childrens’ game. Despite low gasoline prices partly caused by a global price war led by Saudi Arabia, sales have plummeted as people stay home. Storage capacity has reached its limits meaning that even with federal and provincial help producers are shutting down. For incurable optimists, one positive effect could be the redirection of investment toward diversification.
7. The bounce back
It seems almost certain that as low prices slow exploration and drive some producers out of business, oil prices will bounce back. Of course, the question is when. Spending on COVID-19 testing may yield surprising results as they did in places like Singapore. It is also almost certain that as soon as they are released, commerce-starved shut-ins who do have money to shop will rush out to spend it on goods and services. That one-time burst of spending could act in a similar way to Keynesian stimulation, kick-starting the economy and sending businesses that have survived to new heights. In post-war kind of mood, perhaps we will experience post-war solidarity and goodwill based on shared experience to help solve our economic problems. And while some doubt it, another lingering effect may be a baby boom from couples who were just looking for a way to keep busy.
Follow Don on Twitter @don_pittis