Overview

It is a reflection of the uniqueness of the present situation that this publication no longer introduces a variety of new themes and topics every week. Instead, we are stuck on the COVID-19 channel for the foreseeable future. However, that doesn’t mean the same information is being regurgitated week after week. The virus statistics change and our understanding of the disease evolves. New real-time economic signals arrive, our economic forecasts adjust and we are able to muse more thoughtfully about the long-run implications.

The latest developments can be framed in a few different ways. One perspective is that the worst-case scenario has arguably diminished as Italy and Spain demonstrate that severe outbreaks can be reversed in the developed world. However, at the same time, despite the passage of a month with COVID-19, there remains no clear exit strategy in terms of resuming normal economic life – thus, the best-case scenario has arguably also diminished.

Another way of looking at the situation is that the virus news is mostly positive – a decelerating rate of contagion, whereas the economic news is mostly negative – the short-term economic impact may be more severe than previously imagined, and the rate of recovery post-pandemic could be slower. From a macro and market standpoint, it is perhaps most relevant that we have further trimmed our 2020 growth outlook.

A global snapshot

There are now roughly 1.25 million cases of COVID-19 globally, with around 70,000 new infections over the latest day (see chart).

COVID-19 spreading rapidly

The original epicenter in China remains nicely under control. The second hotspot – in Europe – is beginning to stabilize, whereas the latest problem area – the U.S. – continues to suffer from a rising caseload on a trend basis, with more than 330,000 cases now reported.

Positive developments

There are a variety of positive developments to share:

The latest day’s data reveals a reduced number of new global cases and deaths (while we are dubious this truly represents a global peak, it says something about the slowing rate of growth that such outliers are even possible).

The global transmission rate – how many additional victims each sick person infects – has declined beautifully over the past several weeks, from over 3 two weeks ago to just 1.3 today (see next chart). Getting below 1 would mean the virus is in active retreat. Quite a number of countries are now achieving that aim (see subsequent chart).

Global transmission rate declining, but still above key threshold of 1

Transmission rate above one suggests continued growth (based on new cases)

We are specifically heartened by Italy and Spain. These were until recently the two most adversely affected nations, and each now reports a declining number of new cases per day (see next two charts). Other countries such as Switzerland, France and Germany are also tentatively improving. Italy’s new cases peaked 14 days after it instituted a quarantine, while Spain peaked 18 days post-quarantine. If that pattern holds, the U.S., Canada and U.K. should be peaking around now.

Spread of COVID-19 in Italy

Spread of COVID-19 in Spain

The U.S. quarantine response has become more comprehensive, increasing the odds that the world’s largest economy and financial market manages to tame COVID-19. Some of the most hard-hit areas within the U.S. are tentatively showing signs of peaking.

The number of people with asymptomatic COVID-19 may be significantly higher than conventionally recognized. While this would help to explain the high transmission rate of the disease, it would also mean the true fatality rate is lower than feared and that greater progress is being made toward herd immunity than imagined.

China’s economic rebound appears to be vigorous, hopefully signaling a similarly spritely rebound in the rest of the world once the worst has passed.

Negative developments:

However, we also see a variety of negative developments:

While Italy is improving, its new case count has only fallen by a third over the two weeks since its peak. By contrast, the Chinese figures had improved by half and were mere days from improving by 75% at the equivalent point. The virus seems harder to eradicate outside of China.

Relative to China and Europe, the North American quarantine seems quite loose. People are still out and about, ordering coffee, picking up takeout and walking their dogs. This could prevent North America from achieving the same success as elsewhere.

Real-time economic indicators suggest the economic damage may be even greater than initially assumed given massive jobless claims, a sharp decline in credit card usage and data from a host of other technology-enabled indicators.

Prominent epidemiologists continue to predict 100,000-plus deaths in the U.S. and argue that many months of quarantine will prove necessary.

The exit strategy remains unclear. Yes, it would appear that the world can control COVID-19 via quarantining. But can everyone really then return to work while rogue cases invariably lurk? Several additional difficult steps may prove necessary.

Even once the economic recovery has set in, it is probably unrealistic to expect everything to snap neatly back into place. Real economic damage is occurring and recall that the business cycle was already looking stretched when this cataclysm arrived.

U.S. regional story

For all of the bad news at the U.S. national level (see chart), the country is at least becoming more uniform in its quarantining efforts, and there are regional improvements to report.

COVID-19 deaths in the U.S.

Washington State, where the first serious community transmission occurred within the U.S., is now arguably on the mend. The number of new cases per day is down and academic modelling argues the state likely hit peak COVID-19-related resource use on April 2. Demonstrating this, the state plans to return more than 400 of the 500 ventilators it had received from the federal government.

New York City has more recently suffered the greatest outbreak within the U.S., and even there the number of new cases has flattened over the past two weeks.

To the extent these parts of the country went into lockdown first, it is natural that they emerge first. Meanwhile, other parts of the U.S. could take considerably longer to stabilize. On the positive side, the U.S. is starting to close its testing gap with other countries.

Elsewhere, Canada and U.K. continue to experience a rising number of new cases, but should theoretically be approaching their national peaks given the time elapsed since they imposed strict social distancing.

The virus itself

The virus itself remains subject to intense scrutiny. We have already mused about its transmission rate (high but falling), fatality rate (moderate and lower than the case fatality rate currently suggests) and the extent of asymptomatic cases (significant, but uncertain). One further source of concern is that COVID-19 tests are alleged to give a false negative rate of around 30%. This means that nearly one in three infected persons is told they are disease-free. As an aside, this further argues that the true number of infected is higher than official reports. Conversely, the false positive rate – healthy people who are told they are infected – is thought to be near zero.

Several tigers at the Bronx Zoo were recently infected by COVID-19. This is notable. Setting aside the question of how scarce tests were found for zoo animals, it emphasizes that to the extent the virus initially leaped from animals into humans, it is certainly possible for it to reverse course. Several dogs in Hong Kong were also reportedly infected. While it is impractical to quarantine squirrels or vaccinate pigeons, such animals do not regularly interact with humans at a distance of less than two metres. Dog walkers should perhaps be alert to the possibility of canine-to-canine transmission?

A great many pharmaceutical firms remain hard at work trying to develop therapeutics and vaccines. The drug hydroxychloroquine has been discussed with particular enthusiasm, though so have several other existing chemicals known to help the functioning of the lungs. The Bill & Melinda Gates Foundation is putting its support behind seven prospective vaccines. The best case scenario is still thought to be developing a vaccine in slightly less than 18 months, which means that therapeutic drugs have an important role to play as a stopgap solution.

Questioning Chinese data

The British government and U.S. intelligence have both recently accused China of not being forthcoming about the magnitude of its COVID-19 outbreak. China has, to an extent, admitted to this by acknowledging it has not been counting asymptomatic cases in its tally of the infected. It has now remedied that, but only on a going-forward basis. To the extent there is great uncertainty around the fraction of COVID-19 carriers who fail to show symptoms, it is unclear whether China’s 82,642 cases should really be just a few thousand higher or might instead be twice as high or worse. The country has since started reporting new cases as symptomatic or asymptomatic. The latter currently outpaces the former by a remarkable three to one. Granted, some of the initially asymptomatic cases should ultimately prove to have simply been pre-symptomatic.

For all of that, we don’t seriously doubt that China’s new cases peaked in early February or that the situation has materially improved since. After all, the country has since restarted its economy which it would not have done if it was secretly still grappling with a massive outbreak. But the specific contours of the progression of the disease have come into question.

In particular, one wonders whether data manipulation could help to explain the remarkably quick decline in the country’s new cases after the country’s peak. As mentioned earlier, other nations have observed a somewhat slower decline. This possibility could help to explain why China refused to lift its Wuhan quarantine until late March even though the great bulk of new cases were reported to be gone many weeks beforehand. Some Chinese cities reportedly remain in enforced quarantine even today despite zero official cases – this is suspicious.

What is doubly curious about the situation is that China is simultaneously being heralded for the apparent honesty of its economic data. Normally, China is suspected of smoothing its economic figures. However, Chinese January-February economic data admitted to 15% to 25% declines, not obviously holding anything back. Our own proxy for Chinese consumer activity points in the same direction (see chart).

Consumer activities plunged as coronavirus hit China

Granted, the country’s unemployment rate only went up by 1 percentage point, but that was theoretically plausible to the extent it only captures urban rather than migrant workers and because the government is able to strong-arm its companies into not laying off large numbers of people.

Chinese economic rebound

Despite misgivings about some of its data, China remains hugely important to forecasters to the extent its experience may inform the economic path forward for other countries.

Most of the Chinese data argues that China has rebounded forcefully off of a very low floor. Outside of Hubei province, 98% of large Chinese industrial firms report that they are back at work (though note that they may be operating below full capacity). Coal usage is up to 90% of normal and traffic congestion in major cities is up to 98% of normal.

However, some things are hard to reconcile with this, such as the fact that Beijing subway usage remains down 78% relative to normal and only around 70% of migrants have managed to return to their cities after Chinese New Year.

The country’s manufacturing PMI (Purchasing Managers’ Index) has also rebounded. It has risen from a stark low of 35.7 in February to an ordinary looking 52.0 in March (49-55 is normal for China). Interpretations of this have varied. According to the letter of the law, the survey asks whether the sector is enjoying growth or not. In this context, a 52.0 suggests only modest growth off of an extremely low floor set the prior month. However, from experience, many participants respond as though they have been asked whether business is good/bad in an absolute sense. As such, a return to a reading above 50 so quickly is truly extraordinary. The truth likely lies somewhere in the middle.

Exit strategy

The exit strategy from quarantining represents a key source of uncertainty in the economic projections.

Step one for controlling the virus is to slow its spread via social distancing. This is now underway.

But to reach step two – partially reopening the economy while maintaining some physical distancing and protecting the elderly – requires much more testing and contact tracing, strengthened medical capabilities and ideally therapeutic drugs to dampen the blow of the virus. Progress is being made on all fronts, but none of these have been fully achieved. In turn, it is pure speculation how long economies must remain shuttered.

China has seemingly managed a significant restart of its economy without therapeutic drugs, but its testing and tracing efforts have been extremely good, and pockets of the country are still apparently under quarantine.

One can imagine developed-world economies implementing a tiered return to work along a combination of four lines:

Step three is then the full re-opening of economies without physical distancing. This requires strong therapeutics or an outright vaccine, alongside continued aggressive testing and tracing. Alternately, herd immunity would permit this.

Step four is then to be prepared for the next pandemic – putting in place systems that will prevent daily life from skidding to a halt during the next pandemic.

Economic observations

A smattering of formal economic data that captures the initial effects of COVID-19 is now becoming available outside of China.

Purchasing Manager Indices around the world have declined, though to remarkably varied degrees. In the U.S., the ISM (Institute for Supply Management) Manufacturing Index merely slipped from 50.1 in February to 49.1 in March, with the non-manufacturing equivalent down from 57.3 to 52.5. These are still perfectly respectable readings, perhaps reflecting the late quarantining in the U.S. versus other markets. Conversely, the Eurozone Manufacturing PMI fell from 49.2 to 44.6 and the non-manufacturing version tumbled from 52.6 to an eye-watering 26.4. For its part, Canada’s Manufacturing PMI slipped from 51.8 to 46.1.

The real fireworks so far in the conventional economic data have been in the U.S job numbers. March payrolls fell by 701K, the biggest monthly decline since March 2009. The drop was seven times worse than the market had expected, and confirmed a particularly colossal hit to restaurant and bar employment (-417K), with significant job losses also in retail (-46K), hotels and tourism (-42K), construction (-29K), daycares (-19K) and manufacturing (-18K). But even this isn’t the freshest news as we can already say with unfortunate confidence that the April figure should be many times worse.

This clarity comes from the U.S. weekly jobless claims, which have already spiked by 9.5 million initial claims more than normal over the past two weeks alone. These plus any further job losses in the coming weeks should make for a historically bad payrolls report in April.

Representing something of an innovation relative to the last global recession, there is now a staggering array of real-time indicators that also inform the economic situation. Some of these have plummeted to zero, such as online restaurant reservations and movie theatre bookings. Others are now functioning at extremely low levels, such as plane travel and intracity trip planning. Third-party measures of U.S. credit card spending are now down by more than 30%, though keep in mind that some non-discretionary household spending such as paying mortgages, rent and utilities are not picked up by such measures and should in theory be more resilient.

Curiously, Google searches for the word “coronavirus” and related terms has actually declined in recent weeks (see chart). One imagines at some point that people lose interest in the endless barrage of bad news. Whether that means those individuals are feeling less panicked and are more inclined to spend money is unclear, but it could possibly be the case.

Interest globally in Google search topic: ‘Coronavirus’

We highlight two potential economic drags that have as yet received little attention:

Immigration presumably slows as borders close up. In turn, countries that rely upon immigration for a significant part of their population growth (this describes much of the developed world, with Canada a particular beneficiary) could be hit worse than others. The summer approaches and depending upon how long COVID-19 quarantines last, a large number of high school and university students may find themselves jobless over the summer. This could affect the ability of some to return to school in the fall, and increase the indebtedness of others.

Statistical gremlins will increasingly threaten to interfere with the clean interpretation of economic data in the coming months. Businesses fighting for their survival may be in no position to respond to government surveys, and statisticians will furthermore be forced to make heroic assumptions about such esoteric but fundamentally important matters as the “firm birth rate” (though perhaps that is an easy one, as presumably no new firms are being formed at a time like this).

Updated economic forecasts

A week ago, we bragged that for the first time since COVID-19 had enveloped the world, we had managed to hang onto the same growth forecast from one week to the next.

Naysayers could rightly point out that it was no heroic feat to present nine different scenarios and have at least one of them remain relevant a week later. But that critique isn’t entirely fair, as we have tried to keep the medium-depth/medium-duration scenario as close to the most likely outcome as possible.

Indeed, that very compulsion has obliged us to revise our scenarios this week. We now believe a 7.7% decline in U.S. GDP is the most likely outcome for 2020. That’s down from the 3.2% retreat anticipated last week. While our prior suite of scenarios already imagined three outcomes in line or worse than the new forecast, it made little sense to maintain several of the most optimistic scenarios as they are now quite unlikely to transpire. As such, we have re-centered the forecasts (see table).

U.S. GDP and unemployment rate scenarios

The three depth options have now deepened from a peak-to-trough GDP decline of -5%/-15%/-30% to -10%/-20%/-40%. Realistically, a 5% drop was no longer possible while the Chinese experience and some nowcasting data argues that -30% was insufficiently grim as the most negative possible outcome. Endorsing the -20% medium-depth option, the OECD recently came out with its own peak-to-trough estimate of -20% to -25% for developed-world output.

The three duration options have now stretched from 4 weeks/10 weeks/26 weeks to 6 weeks/12 weeks/39 weeks. The old 4-week option is no longer possible – it would necessitate re-opening economies before the end of April which even the U.S. is no longer proposing. As such, 6 weeks is the new positive outcome. The old 10-week option was still entirely viable but was crowded by the new 6-week option, so it was bumped to 12 weeks (late June). Lastly, while we’d like to believe that even 26 weeks of quarantining is far longer than will actually transpire, it is not impossible that the virus will return in the fall or that quarantining will prove necessary until a vaccine is mass-produced, resulting in the 39-week option that extends to the end of 2020.

There is also a third dimension that deserves more attention. It matters enormously how quickly the subsequent economic rebound occurs once quarantining is complete. We have incrementally downgraded our assumptions about this over time, recognizing that real economic damage is almost certainly occurring beneath the surface, particularly given the lateness of the business cycle before this event. As such, although the origins of this shock are entirely artificial and we have more than 60% of the output decline snapping back in the quarter immediately after quarantines end, we imagine the remaining 40% takes another year to reclaim. Furthermore, catching up to the economy’s full potential (which is distinct and will be higher than the pre-COVID-19 level of output by the time 2021 and 2022 roll around) is assumed to take until mid-2022 in the medium-depth/medium-duration scenario.

How do these new economic figures compare to such yardsticks as the Great Depression and the global financial crisis?

The medium-depth scenarios leave the peak-to-trough economic decline just shy of that suffered during the Great Depression, which is nevertheless startling. But keep in mind that the biggest problem with the Great Depression was that it lasted unusually long for a recession – four years of declining GDP, not to mention multiple years of recovery – whereas the defining feature of this event is how short and artificial it should be.

Pivoting to the global financial crisis, the COVID-19 medium depth scenario has a peak-to-trough decline more than four times worse than the financial crisis. However, two things temper this initial sour impression:

The global financial crisis took many years to fully reclaim the economy’s potential. Based on our projections, the cumulative undershoot of potential economic output over the coming five years should be slightly milder for COVID-19 than for the global financial crisis. The global financial crisis was – as its name suggests – a financial crisis first and foremost, and an economic problem secondarily. Conversely, this is an economic problem that happens to have implications for financial markets. Logically, even if the economic hits were proportional, one would expect more financial market damage from the former and less from the latter.

Finally, we should acknowledge the non-economic human costs of COVID-19, including not just death and disease, but also fear and loneliness. Recessions are always unhappy affairs, but there could be more of these two additional emotions during this particular shock.

Labour market update

Our labour market assumptions have been updated for three reasons:

Recent jobless claims have been worse than expected.

Our updated economic forecast imagines a moderately deeper economic decline than before.

Our initial hypothesis that companies would hang onto workers more than usual due to the temporary nature of the shock plus government and societal pressure is hanging by a thread.

Combined, the medium-depth scenario now imagines a peak U.S. unemployment rate of 15.5% (refer back to table above). The jobless claims already recorded in the U.S. are consistent with a nearly 10% unemployment rate already. This presents an upside risk, though recall that layoffs should be heavily front-loaded, in contrast to more organic recessions.

Canada’s jobless claims figures have risen even more aggressively than the U.S. on a per capita basis, if that can be believed. That said, in general, one would imagine a sharper spike in U.S. unemployment than elsewhere due to the greater flexibility of the U.S. labour market and due to greater efforts by other countries to keep workers officially on corporate payrolls.

Government stimulus

Government stimulus continues to be truly impressive – timely, large, broad and potentially highly effective.

Timely and large:

More fiscal stimulus has been announced in the first month since COVID-19 became a global problem than in the first several years of the global financial crisis. Multiple countries are approaching a fiscal push worth 10% of GDP, and more are likely.

Monetary stimulus is now pedal-to-metal from a policy rate perspective and U.S. quantitative easing (QE) is now running 11 times faster than was averaged across 2009, all within a month of the shock. In comparison, global financial crisis QE arrived between three months and 16 months after the onset of the crisis (the start date is debatable).

The Eurozone is now negotiating what could be further fiscal stimulus worth up to 4.5% of continent-wide GDP.

Breadth:

Unlike in the prior crisis, fiscal stimulus isn’t disproportionately bailing out a single sector (financial services). It is instead spanning households, large businesses and small businesses.

Similarly, monetary stimulus isn’t solely purchasing government bonds, mortgages and agency debt. The Fed now has the ability to buy securitized student loans, credit card debt, auto loans, and can even help small businesses. Liquidity offerings are also quite broad.

Effectiveness:

Time will tell how effective this bout of stimulus ultimately proves. But it appears to be well targeted for the most part, aiding those who have lost their jobs and businesses running into financial trouble. We imagine it will ultimately have a high fiscal multiplier.

The point of most policies is not to arbitrarily fill an economic hole with money, but to prevent people from losing their jobs and defaulting on their debt, and to keep businesses similarly liquid and solvent.

Not all policy is created equal, but implementation also matters. The U.S. plan to send $1,200 to each American is flawed in that most of those people have not lost their job and so the money could be better spent elsewhere. However, it should be fairly straightforward to get the funds out the door, and that is an important plus.

Conversely, Canada and several other countries have created highly targeted stimulus plans meant to subsidize wages for workers who would otherwise have been laid off. But uncertainties around eligibility (firms must lose 30% or more of their revenue) and an implementation delay of six weeks means that it is at risk of failing to achieve its objective of keeping workers on the payroll.

Finally, some countries are delivering stimulus through expanded unemployment insurance. This has the disadvantage that workers must lose their jobs to get it, complicating the process of restarting the economy later. But it has the huge advantage of being delivered via an existing program such that there is less risk of delay or error.

Country differences – a work in progress

We already possess rough estimates for the extent to which each major economy will be impacted by COVID-19. However, the toolkit needed to do a proper job of this is radically different than what traditional economic models consider.

We are now working through a fit-for-purpose approach that factors in such national-level considerations as:

Status of viral outbreak

Date and type of quarantine

Extent of border controls

Extent of virus testing

Quality of health care system

Population age and health

Extent and effectiveness of fiscal and monetary stimulus

Pre-existing public debt and deficit

Reliance on immigration

Reliance on international trade

Retail and tourism share of economy

Labour market flexibility

Ability to work from home

Discretionary share of household spending

How education sector is captured in GDP (some countries look at whether teachers are paid; some look at whether students are learning)

Naturally, it is also important to factor in:

Impact of oil shock

Brexit and other idiosyncratic shocks

Underlying potential growth rate

Financial markets

Corporate earnings normally gyrate more aggressively than GDP because company revenues approximate the economy’s movements while a significant fraction of company expenses are fixed. In the current context, that strongly suggests earnings should fall more sharply than GDP in 2020. But the beauty of financial markets is that they are forward looking – not only is this impulse already significantly priced in, but so is the probable rebound in earnings over the subsequent several years.

Naturally, one can debate the extent to which the market has properly priced in the economic consequences. Our latest downgraded forecasts hint that there could be a further adjustment needed, but there are never guarantees when it comes to financial markets.

One thing is clear – the past month has provided the cheapest stock market entry point on a purely price basis in more than three years in the U.S., and in four to seven years in Canada. It could well be that markets provide even more attractive entry points in the future – this is difficult to say – but the long-term risk premium that stocks can now expect to command over sovereign debt in the coming years is already unusually attractive.

As always, we maintain a checklist of key COVID-19 developments to gauge the extent to which the virus is being resolved (see next table). Relative to last week, we have upgraded our assessment of government disease containment efforts and feel more confident that Italy has in fact established its virus peak. However, there are a number of additional boxes to check before we can speak confidently about the virus beginning to genuinely wane.

Financial markets watching for key developments

More long-term musings

In our last note, we highlighted several long-term implications of COVID-19, including:

Public debt levels stand to be significantly higher than before (here’s a 10-Minute Take podcast I did on that subject with John Stackhouse).

Interest rates will accordingly need to remain very low.

Globalization should take a further hit.

A myriad of societal changes may occur, including a greater incidence of working from home now that COVID-19 is (hopefully) proving this to be a viable option.

Here are several further long-term musings, sorted into negatives, positives and interesting.

Negatives:

Innovation could be stifled by a lack of human interaction – even the best networking apps surely can’t fully replicate the random conversations or interactions that happen by the proverbial water cooler. Furthermore, it is hard to conduct physical experiments or manufacture prototypes from home.

The geopolitical environment seems likely to become ever trickier. Already, Saudi Arabia and Russia are battling over oil production due to the need to cut quotas in response to COVID-19. Now, recriminations are flying against China given its status as the point of origin for the disease and possible undercounting of cases. Meanwhile, the U.S. is beginning to play hardball with its allies as it blocks the export of critical medical supplies, and those allies could well reciprocate in other ways.

As highlighted earlier, immigration should at least temporarily cool. It is not impossible that there could be a multi-year diminishment of immigration, with large implications not just for aspiring immigrants but for the countries that traditionally count on those immigrants to drive their economies forward.

If concerns about germs remain persistently elevated, the usage of shared resources ranging from library books to Uber to Airbnb could all take a hit.

Less pressing concerns get shuffled to the background during and after crises. Conceivably, environmental issues – which were just gaining a critical mass of attention and goodwill – could be again relegated to the background. As a silver lining, the quarantining itself is doing wonders for emissions in the short run. Or perhaps we’ve got it dead wrong and voters will demand that politicians pay more heed to long-term issues, including not just pandemic preparedness but also climate change.

The viability of the Eurozone and the European Union has been seriously questioned for the better part of a decade as Europe ricochets from financial crisis to debt crisis to populism to Brexit, and now to this. At a minimum, the group of nations will feel pressure, particularly as geopolitical tensions rise. Fortunately, most European countries are doing a fairly good job in their response to COVID-19, but resentments could easily build as pan-European measures are introduced, and especially if bailouts prove necessary.

Positives:

Much like a haiku, constraints are not always limiting. They can also encourage creativity and thus innovation by providing a different perspective. Social distancing could also allow time for brainstorming and strategic thinking, unleashing great new ideas. Recessions are among the best times to start a new business.

COVID-19 could be the incentive needed to get the delivery of education and the provision of family medicine out of the 20th century and into the 21st century from a communication technology perspective.

Interesting:

If working remotely becomes more accepted, downtowns and condos may become less popular, while suburban and even rural living gain in popularity. In a sense, the pursuit of a self-driving car is a small thing when compared to the possibility of eliminating the commute altogether.

Naturally, online businesses stand to do much better than brick-and-mortar stores, though one would imagine more small businesses will push toward having online portals in response to this event, and shoppers may feel a renewed urge to forgo the simplicity of a one-stop-shop approach in favour of supporting local businesses. The fact that the big e-commerce players are so overloaded with demand at present is pushing many buyers to consider such options already.

Whereas anti-trust pressures were threatening big tech firms before COVID-19, the political focus has shifted 180 degrees, in part toward more pressing matters but also because there is now a greater appreciation for the services provided by these big tech companies during a time of social distancing.

Data privacy concerns were also mounting before COVID-19, and while one imagines they will eventually return, the urgent objective for the moment is finding a way to get people back to work. That may require rather invasive tracking of individuals and their health status.

We wrote last week about changing supply chains – in the sense of diminished reliance on any one country and also some on-shoring back to home markets. A further implication is that companies will likely seek to carry larger inventories (and therefore need more warehouse space), much as companies have carried additional liquid assets since the financial crisis.

Lastly, there is a fascinating study from the San Francisco Fed that examines pandemics over the past 700-plus years. Key conclusions are that for several decades after each pandemic, the rate of return on investments is lower and wages are higher. This makes sense in a world with too much capital per capita and not enough labour. However, we are doubtful these effects will prove particularly visible after COVID-19, as past pandemics significantly reduced the supply of workers. This virus is not deadly enough to have that effect on working-aged people, and governments are further lowering the death rate via social distancing.

-With contributions from Vivien Lee and Graeme Saunders