Economists are at stalemate as to where we are going, no one has experienced anything like this before. Covid-19 has set the world on its ear and there is nothing left on the table to digest. One thing for sure is that the economic lockdown cannot go on much longer. While the immediate benefits are lifesaving, the offsetting economic losses are great.
- There is no way to calculate the potential losses.
- A large number of small businesses will not re-open.
- Those that do will hire staff at lower compensation.
- Once life starts to come back, no one will be in a rush to go out.
- Consumer spending will not come back to pre-Covid levels for at least a year.
All these things have to be considered and this is giving the governments of the day a severe headache.
A number of weeks ago, almost every store window had a help wanted sign posted looking for new employees. Today, that sign is now help needed, those same businesses are now on the verge of bankruptcy and without government help they were likely to go off into the sunset never to come back.
What happened to Canadian Dollar?
The Canadian economy will slowly recover, one positive sign at the moment is that the Canadian dollar has not fallen as much as oil prices. The CAD is generally regarded as a petrocurrency and in the past when oil prices went up, the CAD got stronger to the USD and vice versa when prices fell. This relationship did not follow through during March’s huge decline in oil, market watchers offered several theories for the breakdown.
- Some said investors have priced in the supply glut and demand slump.
- Others speculated that further weakening would only be a matter of time with the nation’s high consumer debt levels and a tight property market that may crash and hurt the currency.
- As long as the CAD-oil relationship stays broken, the better off Canadians are when buying imports especially food.
What happened to Real Estate?
As for the real estate market, Vancouver and Toronto are proving to be the most vulnerable to this economic downturn and policy makers have rushed to prop up the property market. Banks are offering mortgage payment deferrals even for those that own two or more properties raising eyebrows among some conservative economic watchdogs. Currently, there are not that many listings available, most homeowners are keeping a low profile as they have nowhere to go, no one is hiring so there is no reason to sell.
Also the Canadian government through the Canada Mortgage and Housing Corp. brought in a six month window for some homeowners to defer their loan payments. That window will close fairly soon and while the pandemic shows no sign of easing, the CMHC may be forced to expand the deferral period. If not, those that are still unemployed may be forced to sell their homes.
As yet, house prices remain buoyant due to low interest rates, although overall sales are down, the actual price of the transaction is higher than last year.
What has happened to businesses?
It’s not just small businesses that have been impacted by Covid-19, large retail chain stores such as the GAP have indicated that unless malls and shopping centres start to reopen soon, it may not have enough cash flow to sufficiently fund its operations. It has stopped paying rent on its temporarily shuttered stores, which amounts to roughly $115 million in monthly expenses in North America.
Currently a lot of us are at home and are trying to wait out this pandemic hoping that life will go to normal. The question is what is normal? Even if stores reopen and businesses start again, things will definitely be different. Banks for example have been evaluating whether those employees who are working from home can continue to work from home. Senior management are comparing work production levels at the office versus at home levels. Indications are that if the difference is negligible, then more staff could stay at home. The impact to the banks is less expensive overhead, no need for towers in downtown locations, less traffic on the road. Another reason for this is that social distancing will still exist, employees can no longer sit near each other, can’t use bathroom facilities at the same time, lunchrooms could only accommodate fewer staff. These are a few of the new logistics that need to be addressed. The same problems exist for retail stores, restaurants, and cinemas, there will be staff at each entrance making sure the numbers inside do not exceed stated levels, people may need to wear a mask to get in, and in some cases have their temperature checked. This is the new normal.
What happened to Import and Export
The initial impact to international trade was a halt in the movement of goods around the world. Those goods that were deemed essential were shipped out to their respective destinations, after solving the main problem at that time which was the lack of personnel, finding longshore staff, air cargo staff, truck drivers and warehouse crews were missing due to self isolation. It took some time to restart the process which increased costs as shipping personnel were paid higher wages in order to catch up and also be reimbursed for potential Covid-19 exposure.
Oil is it still in production?
The global oil markets prior to the coronavirus were having to deal with oversupply and how much greenhouse gases were impacted the environment. World demand had started to diminish, once the economic lockdown took place demand fell to just a trickle, oil prices fell so low, that one day oil futures fell below zero. This crisis has had different impacts on different oil producing countries, the traditional producers while facing shocks were able to withstand the overall downturn, OPEC and other large oil producers reached an agreement in April to cut global production by as much as 10 million barrels a day. For some small oil producing countries the impact was more severe however they had no choice but to wait out the pricing game. Currently oil prices have come back to more profitable levels, but it would appear that production is still at recent levels propping up the recent prices as demand has yet to come back fully.
Tourism a lost cause
One of the domains that significantly affected by this pandemic is travelling and tourism industry. There are cruise lines that are currently offering discounts for future cruises for late this year. The problem is, the discounts are ok but not great and who knows if there will be a cruise. The pandemic has put the cruise industry into mothballs with some cruise lines downsizing their fleets, that when and if the business does come back, they won’t be able to book every cabin on board due to social distancing.
This would apply to bus tours, airlines, walking tours, and hotels, social distancing will take precedent even if we wear masks.
A lot of people have stated that they will not go anywhere until there is some form of a vaccine and this would be not just a temporary measure. It would have to be a permanent solution. Travel insurance will become a thing of the past if there is no vaccine, insurance companies have announced that Covid-19 is not covered and will likely stay that way.
Tourism will be the last item that will re-emerge as a viable concern, and by all accounts it won’t be until late next year.
