Expect the unexpected: COVID-19 and the economy
Unexpected economic effects are likely to become more common as we get deeper into the pandemic.
By ATB Economics 22 April 2020 2 min read
“Adrift in uncharted waters” is an apt analogy when it comes to the economic effects of the COVID-19 pandemic. We have some sense of what’s next, but we don’t know exactly what we will encounter along the way.
Reduced demand for mushrooms is an example of something most of us probably did not see coming. It was reported in a recent Financial Post article that a mushroom farm in Ontario has seen its sales fall by a third due to restaurant closures.
It turns out that we consume fewer mushrooms when we eat at home than when we eat out. Producers can try to sell more via grocery stores, but this comes with added costs and there is no guarantee that shoppers will scoop up the extra mushrooms.
It’s too early to say what the final impact of the pandemic will be on the sale of the semiconductors found in electronic devices such as mobile phones, laptops and TVs, but a key data point suggests that sales have slowed. According to Bloomberg, “South Korea’s semiconductor exports dropped 15 per cent in the first 20 days of April compared with last year [and, as such, have not] escaped the gloom.”
With mobile phone sales down and businesses buying less new equipment, the pandemic could end up taking a major bite out of semiconductor sales despite the rise in home electronic use.
We anticipated that a global economy brought to a crawl by the pandemic would eat away at oil demand, but the price of West Texas Intermediate crude wandering deep into negative territory for the first time in history still came as a shock. WTI closed Monday at negative US$37.63 per barrel as reduced demand, a global supply glut, a lack of storage at the Cushing oil hub, and the timing of contracts forced some traders to pay to have the oil taken off their hands.
As we get deeper into the pandemic, these sorts of unexpected economic effects are likely to become more common.
A note on COVID-19: The COVID-19 pandemic is having a major impact on the economy here in Alberta and around the world. The Owl will report on these impacts when good information is available while continuing to track regularly scheduled releases of economic data and long-term trends. Please go to atb.com for COVID-19-related updates from ATB Financial.