My local economy appears to be moving towards what is best called the New "Normal:" a state of muddling through in such a fashion so as to keep the spread of the coronavirus under control. From an economy-watching perspective, the closest to clean data for Canada and Quebec will appear in June. Since the latest official unemployment rate data (above) is for April, the implication is that it will be considerable time for the data to catch up.
Although the Quebec economy is not going to be a major driver for the global economy, I will largely focus on the situation here on the principle that it is best to stick with what you know. The situation here appears to have similarities to many other developed economies. However, the details and timing will vary.
New "Normal"The economy has been moving through a variety of stages.
- The lockdown stage, which is now past history in major jurisdictions. (I keep running into people online who are still complaining about this past history.)
- Phased removal of restrictions. This has been underway for about a month in Quebec.
- New "Normal": Activities that are safe are resumed, while at-risk activities are suspended for an indefinite period. Different jurisdictions have different ideas of what is "safe." However, the science of the viral spread will determine this, not debates about constitutional rights.
The economics of the New "Normal" feature a few offsetting forces.
- Certain industries are booming. Grocery stores, delivery services, protective equipment manufacturers, workers installing protective shields. These industries will be absorbing some workers.
- Firms and households will fail financially. This creates a deflationary chain reaction, as in any other recession (as discussed in my latest book!).
- The government sector will be running large fiscal deficits, creating income flows that counter-act the demand losses due to bankruptcies and unemployment.
The advantage that Canada appears to have versus the United States is that provincial finances are more flexible (discussed earlier), and there should not be a wave of sub-sovereign austerity policies.
Under the assumption that central banks keep the financial system away from cascading bankruptcies, these forces are slower-moving than the shocks of the last few months. Eventually, traditional economic data will roughly reflect the current situation (even with publication lags). Currently, the only way to get a handle on the economy is using more novel real-time data (which I only have limited access to).
The remainder of this article will be zeroing in Quebec and Canada.
Given the difficulty of measuring many economic time series recently, the most useful conventional data are probably unemployment rates. However, the data are being horribly distorted by seasonal adjustment factors, and so we need to switch to the unadjusted data (which are what are shown in the figure above).
Given the rapidity of the spike, I will give the monthly figures for Canada. In February (not yet affected), the unemployment rate was 5.9%. March and April then jumped to 8.4% and 13.5% respectively. In Quebec, the April figure was 18.2%.
The May data will presumably be similarly dire as April's. However, if there is going to be a mechanical snap back in the unemployment rate, it should show up in June or July. At which point, it will be much easier to orient economic discussions, as the scale of the unemployment problem will be clear.
Sustainability of Re-Opening
My instinct is that re-opening will not need to be reversed, although it may be that health regulations will come down hard on certain types of activity in response to new outbreaks. The main question mark revolves around the role of children as carriers. Quebec closed schools in the Greater Montreal area until next autumn, so this will be less of a concern.
Under the assumption that my readers are not familiar with Quebec geography, I would note that Montreal is the largest city in the province (and the main concentration of the English-speaking minority). Montreal is an island, with suburbs on both the North and South sides of the island. It is the main centre of the COVID-19 outbreak in Quebec, and even Canada.
The Montreal Gazette has a free-to-read live update page each day, and today's update has a map of the distribution of the outbreak at the provincial level, and the neighbourhoods within the island of Montreal (but missing the off-island suburbs: link).
The data provided to the public is slightly opaque, but I have seen arguments that the cases follow certain themes (which are consistent with the neighbourhood data).
- The initial outbreak came from returning travelers, including three weddings that drew guests from New York City. Quebec has a spring break period that is earlier than other jurisdictions, and the return from Spring Break was before travel barriers started coming down. This explains the earlier outbreak in Quebec than in other provinces.
- Hospitals are suffering with outbreaks. This is putting intense strain on medical staff. (Nurses had a demonstration today to protest conditions.) Quebec hospitals have been struggling with infectious diseases for some time. (My understanding is that Japanese hospitals do a much better job of infection control, which might helps explain differences with respect to spread.)
- Most fatalities are at senior centres (CHSLD is the acronym). The Canadian welfare state provides free medical care (with some exclusions) and income support, but senior homes fell outside coverage. This crisis has uncovered many problems within the for-profit centres (including a lack of air conditioning that has shown up as Montreal is entering a heat wave). (Ontario has had similar problems.) It seems extremely likely that there will be a new regime for the treatment of senior homes, but the objective is to deal with the medical crisis first. Although it would have been ideal to isolate these senior homes from infection, the reality is that residents are in and out of hospitals, and so this was always going to be a challenge.
- Some worksites were hit by outbreaks, including some meatpacking plants (which I believe are smaller than other plants elsewhere in North America). These seem to be quiet.
- There appears to be slow spread in the community, with the focus on multi-family residences, particularly ones with elevators. Conversely, suburbs dominated with houses with no common areas feature very slow spread.
- One question mark is the subway system (metro) that is mainly beneath the downtown (with a few feeder routes).
The challenges faced by the hospital and senior care systems are worrisome. However, the spread rates in those milieus are quite higher than in other activities. Under the assumption that offices remain vacated due to working from home, community spread does not appear to be greatly affected by most industries, with the exceptions well known (bars, sports events, air travel, etc.). Since those high-risk activities are still curtailed, I do not see any reason for there to be a linkage between the economic re-opening and spread rates.
I will just finish off with some themes I would look at once more economic data roll in. For case numbers, CTV has a good summary page: link.
- Ontario is the largest province, and also has a large outbreak that I believe is centered on Toronto. My understanding is that the issues faced in Ontario are qualitatively similar to Quebec.
- Alberta has largely controlled the spread (714 active cases), but I would suspect that the problems in the energy sector be a major drag on the economy. As such, there may no be correlation between the disease spread and economic data.
- Other provinces have also controlled the disease (to the point where there are few active cases), and have more diversified economies. My guess is that these provinces would provide the strongest economic recoveries, and offer an insight to the economic benefits of eradicating the disease.
This comment has been removed by a blog administrator.ReplyDelete
This comment has been removed by a blog administrator.ReplyDelete