Global Investment Outlook

Our latest quarterly Global Investment Outlook has now been published, including an economics article entitled Making progress amid new risks.

Review of key issues

We usually start with an overview of the key positive and negative developments that have transpired over the prior few weeks. But the situation honestly hasn’t changed very much recently. Instead, we highlight several key questions for this pandemic era and our answers for each:

• Has COVID-19 passed its peak? No, COVID-19 seems likely to experience further waves over the fall and winter.
• Do policymakers now know what needs to be done to control the virus? Broadly they do. Certain sectors and activities are proving incompatible with keeping the virus at bay. The issue is more whether governments are willing to again limit these activities.
• Is the worst over for the economy? This is very likely. Subsequent waves of the virus have not required as austere social distancing rules as the first wave, because governments, businesses and households are getting better at maximizing activity while minimizing risk.
• Could there be a second recession? Setting aside the matter of whether two economic declines in short order would be considered separate recessions or simply components of one larger event, there is undeniably the risk of a subsequent decline. This isn’t our base-case scenario and it isn’t even obviously necessary as future waves of the virus come ashore. But complications relating to fading fiscal support, structural damage to a variety of sectors and a delayed reckoning for borrowers could conceivably induce another economic drop.
• Where do the risks lie for growth? Despite our acknowledgement that another recession is possible, we suspect the risk to our growth forecasts lies more to the upside than to the downside. The recovery so far has proven surprisingly brisk and the damage from subsequent viral outbreaks has been surprisingly mild.
• Can the economic recovery continue? On balance, we believe the recovery can continue, albeit at a much slower rate than over the early going. To provide some perspective, developed economies reclaimed more than half of their lost economic output over the span of just three months. Recovering the other half is likely to take the better part of two years.
• When will a vaccine arrive? We are becoming more confident that a vaccine is indeed possible, and can be manufactured at scale by the first half of 2021. This does not mean that everyone will be inoculated by then, but that most high-risk individuals should be over the span of 2021.
• When will economies completely normalize? We expect developed-world economies to return to their prior level of peak output by the middle of 2022, and to eliminate remaining economic slack by the middle of 2023.

Virus developments

The global COVID-19 infection count now nears 30 million, with around 300,000 new infections per day. The daily trend remains roughly flat, but might be starting to edge slightly higher after a happy period of decline in the late summer (see next chart). Fortunately, the fatality numbers are still flat to slightly lower, and remain well below the spring peak.

Spread of COVID-19 globally, cases and deaths

Note: As of 09/14/2020. 7-day moving average of cases & deaths indexed to 100. Source: ECDC, Macrobond, RBC GAM

India has now firmly claimed from the U.S. the mantle of the country with the most daily infections. India now records nearly 100,000 new infections per day (see next chart). While the country’s enormous population makes this relatively less stark, the upward virus trend nevertheless presents a serious problem.

COVID-19 cases and deaths in India

Note: As of 09/14/2020. 7-day moving average of daily new cases and new deaths. Source: ECDC, Macrobond, RBC GAM

Among other emerging market nations, Latin American countries such as Brazil, Argentina, Colombia and Peru figure prominently with a large number of new daily infections. Fortunately, Brazil – the most adversely affected of the bunch – is continuing to enjoy a declining virus count. Mexico is also now clearly improving. South Africa has been another success story lately, with a sharply reduced daily virus count (see next chart).

COVID-19 cases and deaths in South Africa

Note: As of 09/14/2020. 7-day moving average of daily new cases and new deaths. Source: ECDC, Macrobond, RBC GAM

Conversely, Europe remains challenged by its second wave. France is now up to 8,000 new cases per day, though its fatality figures remain radically depressed when compared to the spring. Spain – previously the most adversely affected of second-wave European nations – now appears to be flattening out. The country may even be managing fewer new cases, though its latest drop seems suspiciously sudden (see next chart). Spain’s tentative pivot is particularly welcome as Europe has been a source of frustration as the continent appeared to largely neglect the lessons it should have learned from the first wave and from earlier U.S. missteps.

COVID-19 cases and deaths in Spain

Note: As of 09/14/2020. 7-day moving average of daily new cases and new deaths. Source: ECDC, Macrobond, RBC GAM

The U.S. virus tally remains fairly promising. A flat to slightly declining trend is still evident even as schools have now been open for several weeks (see next chart). The fatality numbers are also in decline.

COVID-19 cases and deaths in the U.S.

Note: As of 09/14/2020. 7-day moving average of daily new cases and new deaths. Source: ECDC, Macrobond, RBC GAM

From a breadth perspective, only 11 of 50 states now suffer a transmission rate of greater than one (see next chart).

Transmission rate, U.S. states

Note: As of 9/13/2020. Transmission rate calculated as 7-day change of underlying 5-day moving average of new daily cases, smoothed with 7-day moving average. States above dotted line at 1 have increasing new daily cases. Includes Washington, D.C. Source: The COVID Tracking Project, Macrobond, RBC GAM

Japan’s rate of improvement has seemingly stalled, but it remains in reasonably good shape. Sweden, conversely, had enjoyed substantial improvements until quite recently, but may now be starting to wobble.

As with a week ago, the U.K. virus numbers remain elevated at around 3,000 new infections per day – roughly triple the level of a month ago. This is concerning.

Canada’s deterioration is not quite so great, but it is nevertheless notable. The country has gone from around 400 new cases per day as of mid-August to more like 700 per day now (see next chart). The four most populated provinces are all reporting an uptrend. The fatality numbers remain quite low for the moment.

COVID-19 cases and deaths in Canada

Note: As of 09/14/2020. 7-day moving average of daily new cases and new deaths. Source: ECDC, Macrobond, RBC GAM

Making adjustments

By and large, the most adversely affected countries are making adjustments to regain control of the virus. Continental Europe has shuttered a number of sectors that were disproportionately enabling the outbreak. The U.K. is now set to ban social gatherings of more than six people.

In Canada, British Columbia has closed its night clubs and convention halls, and limited its restaurant industry to a greater extent. Ontario has announced a four-week pause in its plan to further ease restrictions. More will almost certainly be needed.

But it is difficult to conclude that the world is, on the whole, becoming more restrictive. After all, there is a general inclination to ease rather than to tighten restrictions in an effort to sustain economic growth, northern hemisphere schools are now in the process of reopening, and various U.S. states are now beginning to lighten their own second wave restrictions. For instance Florida is now reopening its bars at half capacity.

In all of this, it continues to seem as though there is a fundamental misunderstanding on the part of policymakers. The trigger for changing restrictions should not so much be whether the virus count is low or high. It should be whether the virus count is rising or falling. If the virus numbers are worsening, it does not matter that the current count is low – it will eventually be high unless changes are made. More to the point, having a low virus count does not mean that more industries should be opened and social restrictions can be removed. Having a falling virus count is what should motivate those actions, and any changes that prompt the count to stop falling – arguably those steps taken in July and August in many countries – need to be reversed.

As to what sectors tend to be problematic and which do not, that is now reasonably widely appreciated: at its simplest, it is those involving lengthy interpersonal interaction in an indoor setting, especially without a mask. As such, bars and restaurants have proven particularly problematic. In fact, a recent study from the Center for Disease Control in the U.S. found that adults who have tested positive for COVID-19 were twice as likely to have reported eating at a restaurant over the prior two weeks. Conversely, no such association was found with shopping, home gatherings, use of public transportation, working in an office, getting a haircut, going to the gym or going to a religious gathering.

Economic developments

Economic developments are mostly consistent with an ongoing economic recovery.

Real-time data

Our real-time mobility metrics continue to argue that the economic recovery has resumed after a shaky July and August, but at a much more muted pace than between April and July (see next chart). There has also been a noticeable amount of international convergence. Countries that were too open have been forced to scale back, while those that were quite conservative have broadly continued to open.

Severity of lockdown varies by country

Note: Based on latest data available as of 09/06/2020. Deviation from baseline normalised to U.S.  Source: Google, University of Oxford, Apple, Macrobond, RBC GAM

Our real-time economic activity index for the U.S. reaches the same set of conclusions using different inputs (see next chart). The recovery is back on after a period of stagnation.

U.S. economic activity picks up after a pause

Note: As of 09/05/2020. Economic Activity Index is the average of 10 high-frequency economic data series measuring the year-over-year percentage change. Source: Bank of America, Goldman Sachs, OpenTable, Macrobond, RBC GAM

Embedded within the activity index is a data series that recently moved from a weekly to a monthly frequency. As such, it now constitutes news when a new reading is available. The news this month was good, with U.S. businesses reporting new orders and sales that are now just 15% below normal, a moderate improvement on the prior month and now suggestive that – at least by this metric – the U.S. economy has recovered more than two-thirds of its initial decline (see next chart). As discussed shortly, this is slightly more optimistic than the claims made by more conventional indicators.

New orders and sales of U.S. businesses hammered by COVID-19

Note: As of 09/10/2020. Estimated as weighted average of % change in new orders or sales for all respondents. Source: Weekly Business Outlook Survey on the COVID-19 Outbreak, Federal Reserve Bank of Philadelphia, RBC GAM

Throughout the pandemic we have tracked a measure of U.S. news sentiment. We view it as a proxy for consumer and business confidence to the extent that bad news would presumably reduce confidence and good news bolster it. The indicator confirms a significant improvement in news flow since May. Yet it remains well short of the prior norm, lagging the improvements conveyed by most real-time measures (see next chart). Perhaps this shouldn’t be a surprise given so many other challenges in the U.S., including political discord, social unrest, geopolitical challenges, wildfires and more.

Daily News Sentiment Index in the time of COVID-19

Note: As of 09/07/2020. Source: Federal Reserve Bank of San Francisco, Macrobond, RBC GAM

Even as the U.S. states most adversely affected by the second wave of COVID-19 stage a recovery, it is notable that the damage continues to linger. The chart below shows the hours worked by hourly workers in various U.S. states. Texas, Florida and Arizona have still fared worse than New York since June.

Hours worked have declined more in states with more active COVID-19 outbreaks

Note: As of 09/08/2020. Compares percentage point change in hours worked from recent peaks in June 2020. Source: Homebase, RBC GAM

U.S. movie theatre revenue is now advancing by leaps and bounds, though it remains extremely low by historical standards (see next chart). Revenues were below $1 million per week until very recently, and have now leapt to more than $20 million. However, this remains 10 times lower than normal, even after the first major film release of the post-pandemic era. Of course, attending a theatre is not a low-risk activity, so the limited revival may be for the best until the virus can be more fully cleared.

Domestic box office weeklies

Note: As of the week ending 09/10/2020. Source: BoxOfficeMojo.com, RBC GAM

Traditional economic indicators

More traditional economic indicators also point to a substantial economic rebound (see next chart). In the U.S., employment has now recovered 55% of its initial losses, with industrial production reclaiming 50%. Retail sales has recovered more than 100% of what it initially lost, thanks in significant part to government support cheques. And the activity at food services and drinking places has recovered a seemingly large 64% of what it initially shed. However, this still leaves the sector nearly 20% below normal due to the enormity of the initial decline, whereas other sectors only initially fell by about half as much. It is nevertheless interesting to note that the rebound has been similar on a proportional basis for this sector.

U.S. COVID-19 recovery

Note: Employment as of Aug 2020; retail sales, food services & drinking places, and industrial production as of Jul 2020. Trough since Feb 2020. Source: Macrobond, RBC GAM

We have now conducted a similar exercise for other countries using their respective employment figures (see next two charts). Several findings are interesting.

1. Although the U.S. and Canada experienced a similar initial number of jobs lost on a population-adjusted basis, Canada’s recovery has been slightly sprightlier so far.
2. East Asian countries such as Japan and South Korea fared quite well throughout the pandemic, experiencing a much milder loss of employment.
3. Europe and the U.K. took a very different approach to supporting workers than North America. The latter focused on boosting its unemployment payments, while Europe focused on subsidizing workers still on company payrolls. Each had its own advantages. The European employment numbers certainly look enviable compared to North America, with most recording a job decline that is at worst one-fifth as bad as North America.

However, keep in mind that this superior outcome is largely illusory. Europe has as many surplus workers as North America and it is costing the government no less to support them. Furthermore, as some of the European support mechanisms expire, those whose companies have suffered a structural rather than a temporary loss in demand are now suffering the trauma of job losses six months into the pandemic. Indeed, Europe’s unemployment rate is likely to rise significantly over the next several months, reducing the Atlantic divide.

# 1 - Pace of employment recovery varies across countries

Note: As of Aug 2020 for U.S., Canada and South Korea, Jul 2020 for Japan, May 2020 for U.K.  Trough since Feb 2020. Source: Macrobond, RBC GAM

#2 - Pace of employment recovery varies across countries

Note: As of Jul 2020 for Germany, Italy and Sweden, Q2 2020 for France and Spain. Trough since Feb 2020 for Germany, Italy and Sweden, Q4 2019 for France and Spain. Source: Macrobond, RBC GAM

Canadian real-time data

As for Canadian real-time data, our latest look at credit and debit card spending in the country continues to point to a surprisingly normal level of activity relative to a year ago (see next chart). A sizeable chunk is due to government support payments, of course. Still, we are heartened that the spending strength has persisted for several months as it means the increase was not merely a form of catch-up spending after outlays were depressed during the early months of the pandemic.

Consumers held steady at the end of August

Year-over-year change in debit & credit card spending

Source: RBC Economics, RBC Data & Analytics

Another real-time economic measure for Canada emerges from the Canadian Federation of Independent Business (see next chart). The series recently switched from weekly to monthly readings, but still offers valuable insight. It confirms that the recovery was enthusiastic in the spring, slowed over the late summer, and is perhaps picking up again.

Most businesses in Canada are fully open now

Note: As of 08/18/2020. Source: CFIB, RBC GAM

Housing strength

The strength of North American housing markets remains remarkable. Perhaps the most eye-popping statistic is that the U.S. National Association of Home Builders sentiment index recently leapt to its highest level ever. To be fair, it is not wildly out of line with the optimism of the prior few years. But the accomplishment is nevertheless surprising at a time when most other activity and confidence metrics remain somewhat depressed.

Among other things, the finding illustrates how different this pandemic recession was from the global financial crisis of a decade ago. Home building was deeply depressed for several years during the prior episode, whereas it spent all of a few months at low levels this time before fully rebounding.

U.S. housing starts are now back above normal, albeit a bit shy of the elevated readings recorded over the final few months before the pandemic ensued. More impressively, seasonally adjusted new home sales are now 26% above February levels and existing home sales are 15% higher than in February. Unsurprisingly, home prices are also up.

Unexpectedly, but nevertheless consistent with the enthusiasm of home builders, the U.S. home ownership rate has surged. It has risen from 65.3% in the first quarter of 2020 to 68.2% in the second quarter (see next chart). For context, that’s a massive move theoretically representing several million households becoming new homeowners.

U.S. home ownership rate soared from historic low

Note: As of Q2 2020. Source: Census Bureau, Macrobond, RBC GAM

It is easy enough to understand the allure of living in one’s own home during a pandemic relative to having roommates, that low interest rates improve the affordability equation, and even that people could be buying second properties as working remotely becomes more viable. However, the increase is nevertheless startling.

After all, there is a flip side to the ledger:

• Unemployment is sky-high.
• Immigration – the driver of population growth and thus demand for new homes – has faltered.
• Recessions tend to induce risk aversion rather than property booms.

Moreover, while government cheques seemingly encouraged more consumer spending, the sums of money have not been large enough to induce a car-buying boom. It thus seems unlikely that home buying would be significantly enhanced.

One theory is that perhaps people were fleeing high-density rental apartments for the comfort and space of a detached home. But in actual fact U.S. apartment vacancy rate has fallen sharply, from 6.6% to 5.7% over the same time period. This may reflect people with roommates opting to live on their own as opposed to a specific preference for a type of dwelling. Another possible explanation is that, due to loan payment deferrals, the normal trickle of people who lose their homes each month has entirely dried up at the same time that demand continues unabated. But the former group simply isn’t large enough to explain the entirety of the boom.

Canada’s housing market experience has been quite similar. Housing starts are now 24% higher than in February. Existing home sales are 17% higher and existing home prices have increased by 3% over the period.

The great risk in all of this – beyond the prior observations about high unemployment and low immigration – is that so many home owners have opted to defer their mortgages. Their payments will come due eventually, and could reveal the soft underbelly of the housing market. Furthermore, it would appear that Canada is considerably more vulnerable to this reckoning than the U.S. Around 16% of Canadian mortgage holders have deferred at least part of their mortgage payments since March, whereas in the U.S. the figure is roughly half that.

Air travel

In the early going of the pandemic, air travel seemed likely to be among the last sectors to revive. It is still suffering, to be sure, but a notable recovery has nevertheless taken place. At the global level, the number of commercial flights per day as per flightradar242 has now recovered more than 60% of the initial decline, though that still leaves roughly 40,000 fewer flights per day than normal.

The recovery is less impressive in the U.S. The number of air travelers clearing TSA checkpoints has roughly quadrupled from its low. Nevertheless it remains around four times below year-ago levels (see next chart).

TSA checkpoint travel numbers, 2020 vs. 2019

Note: As of 09/09/2020. Source: TSA, RBC GAM

Canada’s figures seem superficially more impressive. Domestic air traffic is already back to around 80% of pre-pandemic levels (see next chart). However, this probably overstates the normalization for a number of reasons:

• Unlike the U.S., the Canadian air traffic number includes freight flights, which are presumably in outright greater demand than normal due to the surge of online shipments.
• Canada’s domestic metric excludes transborder and international flights, which remain at near-zero levels.
• Canada’s figures track the movement of aircrafts, not the number of passengers per aircraft. To the extent planes are tending to fly at a lower occupancy rate and perhaps the aircraft in use are even smaller, this also exaggerates Canada’s heroics relative to the U.S.

Canada’s domestic air traffic takes off, cross-border traffic at a crawl

Note: As of the week ending 08/28/2020. Aircraft movements of all airports with NAV Canada towers. Transborder refers to movements to or from U.S., other international refers to movements to or from countries other than Canada and U.S.  Source: Statistics Canada

While much of the world that is managing only a partial recovery of its aviation sector, China has already resumed a nearly normal level of flight activity. This has been enabled by the near-eradication of the virus in the country. Reflecting this, China now boasts six of the world’s 10 busiest airports, up from two a year ago.

As to whether travelling is safe, the research is surprisingly sanguine – despite the unappetizing prospect of sitting indoors in close proximity to many strangers for hours at a time. Few cases of the virus being transmitted on a plane have been reported, likely due to health screening requirements, universal mask wearing and the fact that modern planes filter all of their air every four minutes.

Fiscal update

The enormity of fiscal deficits in 2020 has been widely documented. The U.S. deficit is projected to be a nearly unfathomable 16% of GDP in 2020 and a still massive 8.6% in 2021 (see next chart). It is a similar story in other countries.

U.S. to record biggest budget deficit since WWII

Note: CBO pre-crisis projections made in March 2020, post-crisis projections made in September 2020. Source: CBO, Haver Analytics, RBC GAM

This brings with it several implications:

• a rapidly rising public debt load
• a large amount of economic support in 2020, and
• a big fiscal drag on growth in 2021 (as the deficit spending fades).

We share a few thoughts on each of these items.

1. Public debt levels are set to reach record levels across the developed world. Not only will the U.S. run a $3.3 trillion deficit in 2020, but the Congressional Budget Office (CBO) predicts a cumulative $13 trillion further deficit between 2021 and 2030. This means an extra $16.3 trillion of public debt over the coming decade. The number would have been trillions higher, but the CBO now assumes that interest rates will be materially lower than otherwise after the pandemic. We concur.

Mercifully, interest rates are likely to remain quite low over this period. The increase in debt servicing costs – while unfortunate and ultimately emblematic of public money that will have to be spent servicing debt as opposed to more productive uses – is not completely unbearable. It rises from the lowest share of GDP on record to notably higher than normal, but still well short of the challenging period during the 1980s and early 1990s (see next chart).

Rising U.S. public debt eventually outweighs record-low interest rates

Note: As of Sep 2, 2020. Source: CBO, Macrobond, RBC GAM

2. An enormous amount of economic support is being delivered in 2020. The sum is not quite as large as the 16% of GDP cited earlier since some of that deficit comes from lower government revenues. Nevertheless, it is quite large, even bigger than the peak deficit during the global financial crisis. While this provides helpful economic support, the fact that economic activity nevertheless remains well short of normal reflects the severity of the underlying economic shock.

3. The fact that the deficit is set to shrink significantly in 2021 is an ominous sign for economic growth. While there will still be an enormous amount of raw economic support, it will be less than in 2020. So this represents a growth headwind rather than a tailwind. It is not unreasonable to imagine that the economic drag could be as great as 4 or 5 percent of GDP, all else equal. Of course, additional government support is likely in the U.S. after the presidential election, diminishing this hit. Other governments have also shown an inclination to extend their support programs. Furthermore, the arrival of a vaccine should provide an important offsetting tailwind for the economy.

Central banks

In large part because fiscal stimulus is starting to expire, central banks seem likely to keep their monetary stimulus mostly on track. The U.S. Federal Reserve famously changed its very inflation mandate a few weeks ago, introducing a greater tolerance for periods of above-normal inflation. In turn, it is in a position to extend its stimulus programs for longer. That said, significant changes appear unlikely in the Fed’s upcoming meeting this week.

The Bank of Canada rendered its latest decision last week, but failed to follow the Fed’s radical lead. This was unsurprising, as the Bank of Canada had thoroughly vetted a similar approach several years ago, ultimately rejecting it. The situation has changed somewhat since then. Inflation has been low for even longer and the Fed has conceived of a softer form of price-level targeting. But for the moment the Bank of Canada is likely to stick with its pre-existing mandate.

The Bank noted that the economic recovery has proceeded more quickly than it had anticipated. At the same time, it emphasized that the next phase of the recovery is particularly uncertain, and will be reliant on policy support. The overnight rate was left unchanged, and is unlikely to move higher over the next few years. That said, the Bank of Canada has been gradually scaling back its quantitative easing programs:

• Its corporate bond buying program has already shrunk considerably.
• The federal and provincial short-term bond buying program was previously ended.
• The Bank has now afforded itself the flexibility to adjust the size of the remaining federal government bond buying program. This is code for allowing it to slow over time from its current $5 billion per week pace, as conditions allow.

The European Central Bank (ECB) also delivered its decision last week. It opted to leave its existing stimulus in place, suggesting no great change in its outlook for the future. The ECB slightly upgraded the Eurozone’s growth forecast. That said, we flag that Eurozone inflation was surprisingly low in the latest reading, and the region’s retail sales numbers have also edged backwards. As such, there is a chance that more monetary help will eventually prove necessary.

Watching for inflation

For the moment, inflation readings are fairly low around the world, depressed by the enormity of the economic shock. However, these near-term drags may eventually be replaced by greater upward pressures (see next table).

Inflation should be low in the near term, but may creep higher over long term

Source: RBC GAM as at 09/11/2020

We genuinely don’t expect problems – just modestly more inflation than we have been accustomed to over the past decade, and not even that over the next year or two. Yet it is undeniable that real-time measures of inflation have bounced for the U.S., Canada, U.K. and Japan (though not the Eurozone).

Similarly, actual inflation readings have begun to trudge higher:

• U.S. headline Consumer Price Index (CPI) is leading the pack at 1.3% year-over-year – having bottomed at just 0.2% earlier.
• The increases in Canada, the U.K. and Japan have been somewhat more muted so far.
• The Eurozone continues to plumb the depths. 

Inflation expectations are also beginning to rise, but remain quite tame in an absolute sense.

What about soaring money supply growth – might that create a near-term inflation problem (refer to the next chart)? U.S. M2 growth is now nearly 25% higher than a year ago. The equivalent monetary figures in the Eurozone, the U.K. and Canada are all around 10% to 15% higher than the year before. Japan’s increase is also notable, though less aggressive.

Global money supply growth spiked during pandemic

Note: As of Jul 2020. Shaded areas represent U.S. recessions. Source: Haver Analytics, RBC GAM

While this could theoretically be inflationary, especially since quantitative easing explicitly increases the monetary base, let us not forget several things:

• The U.K., Eurozone and Canada experienced a similar money supply surge during the global financial crisis, yet only the U.K. really experienced any extra inflation, and that was fairly brief.
• The money supply surge is already seemingly ending. U.S. money supply growth on a monthly basis has already decelerated back to more normal readings (refer to next chart).

Granted, this still means the money supply itself is substantially larger than it was at the start of the year. But it argues that quantitative easing is not the sole or even primary reason for the boost, since much of the quantitative easing has continued to this day.

U.S. money supply growth surged during pandemic

Note: As of Aug 2020. Source: Haver Analytics, RBC GAM

Instead, we posit that a big part of this rapid money supply growth represents a preference for liquidity among businesses and households. During economic shocks, people become risk averse and frequently convert less liquid investments and assets into cash and cash-like instruments. This boosts money supply growth without truly altering the outlook for inflation.

Natural disasters

While the pandemic remains the dominant natural disaster of the year, it is not exactly alone in inflicting a toll in 2020.

Before COVID-19 came to widespread attention, Australia was beset by record forest fires. Now, the west coast of the U.S. is back in the spotlight for the same reason. Record forest fires extend from the bottom of California all the way to Washington State. Three of the four largest wildfires in California history are currently blazing, and five of the worst 10.

Dozens have already died, and property damage has been considerable. Rolling blackouts and extremely poor air quality have presented further challenges from an economic and quality-of-life perspective.

If this sounds like a familiar refrain, it should: California has had several bad forest fire seasons over the past few years. One study concludes that California now experiences twice as many high-risk days each year as in the early 1980s. Climate change is the most obvious culprit, though a tolerance for denser forests is arguably another.

The economic implications are as yet largely unknown. They should pale in comparison to COVID-19, but are unlikely to be nil.

Continuing on the review of natural disasters:

• A large typhoon recently hit both Japan and South Korea, though failed to do as much damage as had been feared.
• An internet search revealed that locusts have actually been at their worst in roughly 15 years in 2020. The infestation is concentrated in Eastern Africa and threatening the food supply there.

School update

The reopening of schools this month remains a subject of great interest. The virus risk is clear. But equally, the academic stakes are high: recent research found that American schoolchildren learned 50% less math and 30% less reading than they should have so far this year. Further research finds that the shortfall lands disproportionately on poor and middle-income families. Children from wealthy families actually learned slightly more than usual over the period.

The reality is that even the best-run school systems will ultimately have to grapple with cases found within their walls. This is arguably a mathematical inevitability. In a Canadian context, 11,703 children have already acquired the virus in other settings over the past six months. That is more than 60 new infections per day.

Even if schools limit the transmission to zero and children simply continue to acquire the virus through other channels, something like 30 new schools will have to be closed for precautionary reasons each day on the basis that a student had been infected. If each closure lasts two weeks, and given that Canada has 5,500 schools operating over a 180 day school year, you’d expect the average school to lose several weeks of in-person education instruction time. Some schools may get lucky and avoid this, while others will be burdened with months of virtual instruction.

Of course, if significant transmission occurs within schools such that the number of infected children rises materially, then the time-away-from-school figures could easily be much higher.

Conversely, if administrators decide that only people who have been in close contact with an infected student must quarantine – a policy implemented in some countries, then schools can largely stay open and only certain classes will have to pivot to periods of virtual learning.

The bottom line is that the average school must be prepared to flip-flop between being open and closed, much as they have in places like Germany and Australia, and much as they now are in Alberta. Having an infected child within the school is not an improbable event, but rather something to be expected over the span of the year. This will be a challenge for teachers, students, parents and for that matter the economy.

-With contributions from Vivien Lee and Kiki Oyerinde