The world seems to have come to a stop because of COVID-19. Everyone is paying attention to the rather alarming data put out by our healthcare professionals and mainstream media. Our minds are focused on our personal well being, the health of our loved ones, and of the most vulnerable in our communities, and rightly so.
Although health and safety are paramount, we cannot forget about the economic impacts COVID-19 is going to have. No matter who you are, no matter how secure your employment, this will and probably already has impacted you.
Our economy has definitely seen better days. In addition to the oil price crashing 50%, the COVID-19 pandemic has caused society to begin rebuking non-essential businesses that keep their doors open.
At this point, a recession of some extent is to be expected.
The toilet paper rally of 2020 might be the long-term saving grace. While certain sectors of the economy (i.e., airlines, restaurants, non-essential businesses, etc.) are grinding to a halt, others are red hot. Due to the just-in-time grocery services, our grocery industry is busier than ever.
Recently, the CEO of Loblaws announced increased measures to keep things moving swiftly during this time. The silver lining to all of this? For the first time in Superstore history, they actually have every lane open as promised. The grocery industry is an example of an industry that is having it’s best few weeks in history.
While everyone is busy stocking up and enduring 2-hour grocery store trips, we have been busy thinking this thing through. What are the potential long-term effects, and what’s likely to happen in the short-term? We have made a list of our predictions.
Short-Term Effects of COVID-19
Life and work are going to be tough in the short-term. Canada will likely end up in a recession. How extensive, we don’t know, but remember, all a recession means is 2 consecutive quarters of economic decline. This is not the end of the world, but is usually coupled with an increase in unemployment and slowed spending.
If you are wondering what you need to do to prepare yourself for a recession, we urge you to read: How to Prepare For a Recession in Canada – 2020
Oil and Tourism
Alberta will likely see the worst of it due to the substantial drop in the price of oil and the size of Alberta’s oil industry. Air travel, tourism, restaurants, hospitality, and other leisure-based industries will also see customers disappear. The Canadian government is already stepping in with a plan to provide for citizens directly and to support businesses and industries that will be hit hardest.
In the past few weeks, we have seen some very dramatic moves in financial markets in Canada and the USA. Stocks dropped, interest rates dropped, stocks rallied, then fell again, interest rates were cut to near zero.
Financial markets will likely continue to be unpredictable due to the uncertain impact the virus will have on our economies. Add in a lack of liquidity in markets due to extreme levels of leverage built up by years of low interest rates, and you can expect high price volatility to be the new normal.
While emotions and volatility are high, we can expect to see drastic daily, weekly, or monthly changes in our savings, retirement plans, and even our real estate. However, it is important to remember that price does not dictate value. If know how much the asset you own is really worth, does it matter what the market is telling you the price should be?
Interest Rates and Housing
Finally, a lower interest rate means a cheaper cost of borrowing. The cheaper it is to borrow, the more affordable assets such as real estate become. This could contribute to a potential housing bubble but we do suspect that banks and other mortgage lenders will pare back their risk. Meaning they might be less willing to lend to those without credit history or considerable existing equity.
Regardless, a lower interest rate should stimulate some economic growth for the short term.
Long-Term Effects of COVID-19
Crisis never lasts. A pandemic such as COVID-19 won’t continue on forever. Especially now in 2020 with modern medicine and our incredibly gifted medical professionals. Countries are pooling their resources, and a lot of research and testing is being done on potential treatments and vaccines.
Unfortunately, it cannot be done overnight, and it still takes time to develop, orchestrate, and make solutions available on a global scale. There will be effects from the economic pain we experience until a solution is readily available.
Prior to this pandemic, the US and Canadian unemployment rates were at record lows. Nearly anyone who wanted a job could get one. Obviously, during these unprecedented times, we have seen an increase in unemployment in certain sectors and industries, with restaurants, hospitality, tourism, and air travel being hit almost overnight.
However, the government has already announced massive aid to businesses, and those directly affected by COVID-19. With all of this taken into account, hopefully, we will see the economy and employment restored once it’s back to business as usual.
Just-in-time Supply Chains
Store shelves are empty right now because shoppers have panicked and just-in-time supply chains have been stretched to their breaking point. Social media is plagued with videos of the huge lineups, empty shelves, and fistfights over bottled water and toilet paper.
Once the panic dissipates, we as a society will realize the frailty of the profit driven just-in-time supply chain. Stores and distributors may take a different approach going forward, carrying more inventory and relying less on timely delivery.
Consumer habits may change in response to this too, us realizing that when we go to the store they may not have item stocked that we need. On a more optimistic note, this does provide local business people with an opportunity to bring commerce back to a local level where we don’t need to rely on Walmart to be open 24-7.
What Should You Do?
Hold tight. Don’t Panic. Make sure you have ample cash reserve. Talk to your investment advisors to make sure you are positioned properly. Have a few weeks worth of groceries and medications on hand, as the less trips you have to make to the grocery store the better. If you are in large metropolitan centers that are hardest hit by the virus, prepare for temporary quarantines.
Most importantly, if you do find yourself in a temporary quarantine or are just self isolating as a good measure, do some planning! Update your budget, prioritize your life goals, chart out a path of how you’re going to manage your money and take steps towards your goals. Make sure you have proper insurance coverage, and make sure you have your Wills and Power of Attorney updated.
Contrary to the message in the media, the government actually wants you back to work as soon as possible. Things will go back to normal. It will just take a bit of time.
Stay safe, friends. You’re going to be fine. We’re rooting for you.
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Disclaimer: This Forbes Wealth Blog is for informational purposes only and does not constitute financial, legal, or tax advice of any kind. Please consult your legal, accounting, tax, investment, banking, and life insurance professionals to get precise advice relating to your particular situation before acting upon any strategy