Boom or Bust?

Will you be part of the boom economy post pandemic?

This recession is not like other recessions where we can expect a slow recovery. Generally, a recession occurs at the peak of a business cycle when high prices, diminished spending power, or concern for the future cause business to cut their productivity and workforce. This type of recession we experienced in 1981, 1991, 2008-09, 2014.

Matt Fabian, Director of Research and Consulting Insights for TransUnion Canada predicted in a webinar on risk and lending dynamics in consumer credit market place on April 6, 2020 that the GDP will swing like a pendulum after the pandemic. I agree that, once a vaccine is available, the economy will bounce up as fast and as far as it fell before leveling off to normal economic activity. We should expect production and buying of items that people have put on hold purchasing for some time. People will also want to get out and socialize with friends and family in an abundance of ways.

During the pandemic people and businesses need to recreate themselves in order to survive including online and work from home. Many of these new policies and practices will continue after the pandemic. Likely there will be less demand for commercial space, parking, transportation, and small condominiums downtown. People who are able to find alternative work solutions will thrive following the pandemic. Only those people who are reluctant to change will find it difficult in the new normal.

Yesterday CMHC issued their Summer 2020 report with an overview of the housing market where they predict the price of homes will fall and rental vacancy rates will increase in the short term particularly in large urban cities such as Toronto. This is as a result of unemployment and income losses, migration to large homes in the suburbs which have space for home offices, and minimal immigration during the pandemic. They predict home sales will recover early in 2021 and show growth in 2022, new construction will be strong as a result of pre-construction sales, urban condominium prices will soften as a result of increased supply, and millennials may need to live with parents longer.

I do not agree with CMHC that those who will have most difficulty after the pandemic will be "millennials", but rather, I believe those that will have most difficulty will be people who are not tech savvy and or those people who are reluctant to change.

Matt Fabian predicted that there would be a fairly significant increase in bankruptcy among those who are not able to adapt to the new normal. He also mentioned that we know from the recession of 2008 that those people who experience bankruptcy will take a long time to restore their credit if they are able to at all; stating that, many still have not financially recovered from the 2008 recession. This heightens the importance of people recognizing the need to find alternative employment as quickly as possible.

Statistics Canada reports that the GDP for all industries fell 7.2% at the end of the third quarter. It will be interesting to see the reports at the end of the second quarter now that we have started to reopen many businesses; however, we should not expect the economy to recover until we are able to fully reopen.

If the economy rebounds as quick and high as it fell, we should expect a very robust economy following the pandemic recognizing those businesses that adapted to the new norm will thrive and those that did not make accommodation will not survive.