What is post-COVID-19 growth going to look like? You’d be forgiven for rejecting a fast answer to this one; forecasters didn’t exactly nail it in the post-global financial crisis period. And, there’s arguably a lot more uncertainty this time around. Is there even any point in trying to see what shape the economy will take in the coming months and years?
If anything, it’s all the more critical. It’s no exaggeration to say that there are very few, if any, precedents for what we’re experiencing. Oh, there have been pandemics before; but the world has never reacted to one in the way we’ve done this go around. We build an outlook as we always do—by putting key pieces of the existing picture together and combining this with what we know of the economy’s automatic mechanisms.
Here goes: We entered COVID-19 with large pent-up demand (see my Sept. 3 column), which helped us get an initial sharp rebound. That’s set to flatten somewhat as second-wave infections, already underway in most places, moderate our initial enthusiasm. Eventually, we’ll have to deal with paying for all the stimulus—trading growth now for growth then. This, to us, looks a lot like a checkmark: a fast start and a slower finish.
It’s already obvious that it’s not that simple. Getting the shape of the overall outlook is critical, but we’re already seeing that there are winners and losers—lots of both—in this outlook, complicating the response to the situation. Take industries, for example. It’s quite plain that for anything connected with tourism, 2020 is essentially a lost year of activity. The accommodation and food, arts and entertainment, transport and aerospace industries are all languishing. Plunging oil and gas prices haven’t made things easy for an industry already grappling with structural woes.
Meanwhile, other industries are soaring. The rush to secure food supplies has created a global agri-food boom. Retailers are a mixed bag, but the online variety and their logistics support networks are red-hot, as are their unstoppable stock-tickers. Telecom and tech support and solutions are also in hot demand as the remote revolution continues.
It’s not just industries, though. Countries face the same divergent paths. Those that are dependent on the tourism or energy sectors have lost their key source of foreign exchange earnings. Nations that are particularly trade-dependent are in similar straits. Those that entered the COVID-19 episode with a dodgy debt picture will no doubt see their ratings suffer. On the other hand, tech-heavy nations with solid supporting infrastructure are better able to adapt—and help others adapt—to changed ways of doing things.
The differences go on. Age is a factor as the young and less-experienced will likely find it tough to break in to an instantly-rigid marketplace, all the while trying to cope with student loans, high housing costs and so on. Older members of society are finding higher vulnerability to the pandemic an enormous risk and constraint on their activities.
Income is also a factor. Millions have been laid off, and have had to depend on whatever subsidies have been made available to them. Their future uncertain, they’re likely hanging on to as much as they have for as long as they can. At the same time, those that are still pulling down a paycheque have less to spend on, and are seeing their bank balances swell. Talk about contrasts.
The emerging picture is one of a divergent economy, struggling to map out a reconvergence. Political and economic polarization isn’t new; the planetwide problem pre-dated the pandemic. Current circumstances only seem to have exacerbated the situation.
The bottom line?
The overall “checkmark” outlook on the surface looks manageable. Canadian sectors, like retailing and international trade, look positively V-shaped, and give hope that the rest of the economy might soon follow. But a quick peek under the surface changes the picture radically: there are two economies, one red-hot and the other ice-cold, with a third in the middle, straddling the extremes. Under the surface, this is looking like a K-shaped outlook, which cries out for a creative, non-conventional strategic response.
