Staying home shakes up economy
Economists say the COVID-19 pandemic could bring about long-term structural changes
Over the past 10 days, UBC economist Giovanni Gallipoli has witnessed more changes in his workplace than what ordinarily takes place in a year. With classes closed, he and his faculty colleagues have been working crazily, figuring out how to offer instruction, test students, and receive assignments online when everyone is at home.
Gallipoli has researched the growth of information-technology jobs, so he’s no newcomer to understanding the impact this sector has the economy. Now he and his colleagues are relying on IT workers to help them make monumental transitions. It’s all being done in response to the COVID-19 pandemic and public-health officials’ desire for social distancing to flatten the curve of new infections.
“In times of crisis, usually you adopt changes really fast—and sometimes these changes are not reversed,” Gallipoli explained. “These occur during wars or during periods of upheaval—social or otherwise.”
In other words, this new stayat-home economy will likely have long-lasting ramifications on the consumption of goods and services in Canada. For now, restaurants are prohibited from offering table service—only takeout and deliveries are allowed. Professional sports events, concerts, and other large gatherings are banned. And that’s throwing huge numbers of people onto the unemployment rolls.
“I think we haven’t seen the worst yet in terms of health costs or economic costs,” Gallipoli added. “Both ways, it will be painful to people, actually.”
The deputy chief economist of Central 1 Credit Union, Bryan Yu, also feels that the COVID-19 pandemic is bringing unprecedented changes, particularly to tourism, restaurant and food services, and retail.
“A lot of them have been shuttered,” Yu told the Straight by phone while working from home. “This is not something we’ve seen: where entire sectors of the economy essentially see zero activity.”
He pointed out that the federal government and central banks around the world are trying to ensure there’s sufficient ongoing liquidity and credit available to businesses. But unlike other economic contractions, this came as a largely unexpected shock. “You don’t [normally] see revenues completely fall off the map,” Yu noted.
The impact of COVID-19 varies, depending on where people are living in Canada. Alberta, for instance, has been hit with stunningly low oil prices, with Western Canadian Select falling below $8 per barrel. According to Yu, Vancouver will feel a greater effect from the ban on foreign visitors because its tourism sector is a larger portion of the economy relative to other parts of the country. In Ontario, the shutdown of factories, particularly in the auto sector, is affecting those along the supply chain.
B.C.’s unemployment rate was five percent in February. Yu expects it to rise above eight percent in the second and third quarters of 2020. By the fourth quarter, he anticipates that businesses will start to resume normal operations. Ontario’s jobless rate was 5.6 percent in February, and it’s also expected to climb.
Yu described the COVID-19 pandemic as a “temporary phenomenon, although a very severe phenomenon” from an economic standpoint.
Yet amid all the gloom, Yu also suggested that certain sectors are faring better than others. Purveyors of basic necessities, like grocers, are experiencing strong sales. Creators of direct-to-consumer products and online retailers like Amazon are also poised to profit from people spending enormous amounts of time at home. Then there are producers of items that can monitor people’s health, mobile apps, and video games, which are also well-positioned for the stayat-home economy.
“According to Verizon, overall video-game Internet traffic has increased 75% since restrictions were imposed in America,” the Economist recently reported. “Bungie, a videogame developer, says that average daily user engagement on their game ‘Destiny 2’ is up 10% worldwide and as much as 20% in the markets most affected by the coronavirus.”
Another growth area is eSports, for those looking for alternatives now that the NHL and NBA have suspended their seasons. (For more on that, see the article on page 2.)
Yu plans on paying attention to the commercial real-estate sector. Once people get used to working from home, will companies want to bring them all back into offices? Especially if that involves incorporating new social-distancing measures in the workplace if there is no COVID-19 vaccine? These are open questions.
The beer, wine, and spirits market is also undergoing an astonishing transformation, at least over the short term. That’s because companies can no longer distribute their products in bars and restaurants.
The big winners will be public and private liquor stores, which are going to supply booze to people forced to drink at home.
There could also be significant changes to transportation over the longer term. Steve Miloshev, owner of the Motorino store in Vancouver, told the Straight by phone that he’s expecting demand for scooters, bicycles, and motorcycles to increase as more people decide that they want to avoid public transit.
“During a crisis, people are changing their priorities,” Miloshev told the Straight by phone. “They’re changing their perceptions. They’re changing the way they behave.”
He emphasized that he’s “not excited for this situation”, expressing sadness for those suffering from COVID-19. At the same time, he hopes it will spur positive behaviour in the future.
“The tangible priorities will crystallize after a crisis like that,” he said. “People will start living more healthy and take more care for the environment.”
THAT PERSPECTIVE is shared by Vancouver political economist Seth Klein. Like many parents, his family life has been upended by the global COVID-19 pandemic. When reached by phone, Klein told the
Straight that he’s been busy developing a home-schooling routine for his five-year-old son—something he never imagined doing.
His wife, Vancouver city councillor Christine Boyle, has also been spending far more time at home. On March 23, she participated in a “virtual council meeting”, where local politicians amended the city’s state of emergency bylaw.
Klein devoted the past year to writing a book on climate change, drawing upon lessons from the Second World War. He felt that people needed a touchstone of that former crisis to comprehend what needs to be done to address runaway greenhouse-gas emissions. The book was sent off for copyediting just as the COVID-19 crisis unfolded at a scale nobody could have imagined a few weeks ago.
But he sees some key differences. With COVID-19, unemployment is increasing and the gross domestic product may shrink, whereas the jobless rate went down and GDP went up during the Second World War. He’s hoping that policymakers will embrace the Green New Deal—a set of social and economic reforms to stimulate the renewable-energy sector—to promote economic growth after the pandemic is brought under control.
“Now I think we’re seeing some great battle about to unfold in the next few weeks where the defenders of the fossil-fuel industry are going to be trying to seize on this opening to extract from the public the capital that it couldn’t get a few weeks ago,” Klein said. “Many others, myself included, are saying we do, indeed, need a massive government-intervention response, but not this one.”
That’s not the only major choice facing policymakers. UBC’s Gallipoli said that there’s also an economic and political debate unfolding over whether virtually everything should be closed to address the pandemic. According to him, a serious and well-enforced shutdown could be tolerated by the system for up to two months, though at considerable pain to the public. He suggested that this would be preferable to trying to keep the economy going, even if this approach didn’t have as much success in reducing the rate of infection.
“The first view seems to me somewhat more realistic because I can’t think how one could keep the standard functioning of things if you get these peak infection rates, you get congestions in the health system, and then you generate panic like what effectively happened in Italy,” Gallipoli said. “When you embed a situation like that, then it becomes g really dangerous.”