Paralysis is not supposed to be one of the symptoms of COVID-19, the disease caused by the new coronavirus sweeping the world.
But drastic action by the world’s central banks — the “bazooka” as German Finance Minister Olaf Scholz labelled it, a term quickly adopted by the financial media — has left economic actors stunned and immobilized.
As markets continue to gyrate and tumble there is increasing evidence that even free money, now being offered at nearly zero per cent, is simply not enough to reassure the world facing an inscrutable future.
Evidence of that paralysis came from close to home yesterday.
While the headline from the Canadian Real Estate Association’s monthly release boasted of a resurging property market, far more revealing was what the group’s economists said about the future.
“As providers of the most accurate and timely housing data and statistics, CREA cannot credibly update its quarterly forecast at this time,” said the association in bold type at the top of its data report for February.
Less than two weeks ago, when Bank of Canada governor Stephen Poloz announced his first big interest rate cut, there were fears the sharp fall in lending costs would goose the Canadian property market with the attendant danger of recreating a real estate bubble.
Now even the experts aren’t sure. And things are changing quickly. Only last week there were accusations that the central bank was scheming to restart the economy on the backs of overborrowed Canadians.
Suddenly, what seemed like a reasonable concern over the threat of more reckless borrowing has transformed into new worries that the spring property market and the retail sector are crumbling as house hunters and shoppers stay home.
And housing is only one sector under assault by a tangle of interdependent consequences of the new coronavirus for which no one had developed strategies. Canada’s fossil fuel sector knew there were challenges ahead, but they did not include a sudden plunge in demand followed by a vicious price war.
“The macroeconomic backdrop is completely uncharted waters for oil and gas companies,” said Tom Ellacott, vice-president of the energy research company Wood MacKenzie.
With no way to know what energy prices for the rest of the year will be, investment plans made a few weeks ago have become meaningless.
The caricature of so many of us closeting ourselves with bales of toilet paper and emergency supplies in the safety of our homes applies to investors as well. As world leaders, including Prime Minister Justin Trudeau, repeatedly announce updated ways of coping with the virus, investment plans made yesterday are out of date today.
As the Bank of Canada governor once told us during the disputes with the U.S., the main economic impact of trade uncertainty was that companies and individuals considering whether to spend money cut their investment plans until they could see the way forward.
If that is how investors reacted to ambiguity over the future of trade, it is no wonder the current set of unknowns has them bewildered.
Will government rules to slow the spread of the virus get stricter yet? Will the shortage of parts we saw when Asian factories closed recur in the U.S., our biggest trading partner, as cases and deaths climb? Will the path of the disease in the U.S. and Canada be staggering like in Italy or mild like in Singapore?
Will job losses lead to a vicious circle of collapsing demand? How many consumers or businesses will default on loans? Can the consumer confidence that has recently been leading the economy bounce back?
And just as the bizarre quest for too much toilet paper was accelerated by social media feedback, a new round of uncertainty for investors has been caused by investors themselves.
Why do markets keep selling off even as experts reassure us stocks will bounce back? Is there something wrong that we don’t know and everyone else does? Will the economy and the market structure crack under the strain?
With so many questions unanswered, even more rate cuts and a suite of government plans to inject money into the economy at various levels apparently are not enough to make that uncertainty go away. And there is no point in telling people not to panic.
“First, those who are already panicking are unlikely to listen. Second, those who aren’t will start to wonder if they should,” wrote emergency preparedness expert Simon Wessely in the Financial Times on the weekend.
Everything will change when we know — or at least think we know — the answers to some of those questions. And while we are waiting, rather than staring into the abyss, perhaps this is the time to think ahead and imagine an inevitably brighter future.
Follow Don on Twitter @don_pittis