Even when we were finalising the March issue of PIN, while there was a general opinion that “this isn’t going to be good”, just a few weeks later and the severity of the economic impact that continues to be caused by the coronavirus (COVID-19) has taken another giant leap forward into the unknown.
The mother of black swans
The plane has hit the ocean (the virus is everywhere and spreading like wildfire) and the global economy is currently treading water, waiting for helicopters (full of cash) to pull them from the deep, cold water. In reality, only a vaccine, (or a treatment for those already sick to stop the virus spreading further within their lungs), arriving before autumn is going to be sufficient to stop hypothermia from freezing the economy this year, or even worse, the sharks from eventually eating us (OK, enough with the plane crash analogies).
The point is, if you cast your mind back just a dozen weeks ago to the start of 2020, so many of the things that we took for granted, and have taken for granted our entire lives, have all of a sudden been removed completely. Take a week off from work to sit on a beach somewhere to recover from a stressful period? Not anymore. Jump on a plane to visit a relative overseas that is sick, or to attend their funeral? Not this time, the airport is closed. Go to a music concert, football match or a nightclub to blow off some steam? Not allowed, all closed. Simple freedoms have evaporated, like having a dozen children over to your house for your daughter’s birthday party. “Not this year Princess”.
In this article we will take a closer look at how commercial property markets will fair during this pandemic but before we do, it was worth pondering the all-important question regarding any investment decision – is inflation or deflation around the corner? While the stock markets are undoubtedly deflating and so is the global economy, any faster than expected turnaround in events regarding COVID-19 - be it a vaccine, a cure for the infected, a weakening in potency of the virus, a slowdown in the number being infected etc. - will very likely unleash a strong bout of inflation. This is because, unlike in 2008 when demand fell off of a cliff but supply continued as normal, this time around supply has also fallen off of a cliff. Car plants are closing, clothing factories also, airlines are going bust.
All the while, millions of employees will be earning close to full salaries while working at home in isolation, or being paid almost a full salary not to work at all. This means that bank balances will be rising and overdrafts/credit card debt will start to be paid off. People will also have plenty of time to appreciate that “life really is short”. The world will have changed and so will our attitudes to life. Divorces will rise, there will be a baby boom and, perhaps most importantly for the economy, we will spend again.