You can find plenty of articles in the media and on the web with charts comparing the speed of the stock market selloff after the Great Crash of 1929 with what we have seen in the past few weeks. The pace of the decline right now is much more severe than it was in 1929; therefore, some people are arguing, the fate of the economy must be worse than it was back then.
There are some good reasons to think this is wrong. The Great Crash seemingly came out of nowhere and had no obvious single cause, so it was impossible to forecast how long it would last. By contrast the Coronavirus Crash, while quite sudden, has happened in response to a single event, and the world has enough experience with virus epidemics to have a good idea of how long this one is likely to last.
Then there's the policy response. Back in 1929 just about everything the authorities tried in the US and around the world was flat out wrong, starting with the immediate move to raise tariffs. It was only with FDR's New Deal after 1933 that policy began to move hesitantly in the right direction, and it was only the advent of World War II that finally triggered the appropriate amount of stimulus.
By contrast, governments and central banks today have moved quickly to provide massive support and stimulus, in surprising and innovative ways. The steps taken are not designed to prevent economies from slipping into recession, which is almost certainly not possible. Rather the idea seems to be to implement a kind of economic stasis, with wages protected and businesses judiciously supported while the epidemic itself is dealt with. This provides a level of certainty to business and consumers alike that should both prevent a spiral into depression and allow the economy to recover smartly when the crisis passes. Indeed, as and when we reach that point, it may become necessary to act quickly to remove the stimulus, in order to forestall the possibility of a sharp rise in inflation.
What can still go wrong here? The biggest mistake that policymakers could make would be to start allowing the economy to return to normal before the virus is under control*. This would risk triggering a fresh and potentially even more serious wave of the virus, leading to an entirely avoidable surge in deaths and greatly heightening the risk that recession turns into depression.
The redoubtable Dr Anthony Fauci has assured the world that Donald Trump's talk of reopening the US economy by Easter is "aspirational". He says the decision will be based on the evidence to hand at the time. America, and the world, had better hope so.
* Dr Doom himself makes this point here.
Saturday 28 March 2020
Tuesday 24 March 2020
Shut down and shut up
OK, here's a question. Are people not flying because the airlines are cancelling flights left, right and centre? Or are airlines cancelling flights left right and centre because people are not flying? It seems blindingly obvious that the answer is overwhelmingly the latter.
This is important because we hear Donald Trump, with his mayfly attention span and his disdain for expert advice, is looking for ways to "open up" the economy again as soon as next week, after an unevenly-enforced 15-day partial shutdown. If a large number of people really are afraid to fly and afraid of wider social contact because of fears about COVID-19, it's altogether possible that any premature attempt by Trump to get things back to normal might simply fail.
Of course, in today's divided America, things are unlikely to be that simple. State Governors who have more aggressively shut things down in their jurisdictions, led by Andrew Cuomo in New York, would strenuously resist any order from the White House that they considered dangerous. However, die-hard Trump voters in those states would undoubtedly take Trump at his word, trying to resume their normal lives and putting themselves and their fellow citizens at risk.
The real point here is that the choice that Trump seems to imagine he has -- defeat the virus or avoid a recession -- doesn't actually exist. If everyone is herded back to the factories and malls next week, the spread of the virus will accelerate sharply. That's not a recipe for avoiding recession -- very much the opposite, in fact. Some of Trump's fellow Republicans seem to grasp this very clearly: here, for example, is a tweet from Rep. Liz Cheney:
"There will be no normally functioning economy if our hospitals are overwhelmed and thousands of Americans of all ages, including our doctors and nurses, lay dying because we have failed to do what's necessary to stop the virus."
Indeed. And while we're over at Twitter, here's an excellent observation from former England soccer player Gary Lineker:
"If we stay at home and do as we’re asked, we won’t have to stay at home and do as we’re asked for anywhere near as long."
There was a doctor on CNN this morning claiming that five weeks of aggressive social distancing and testing would be enough to knock out the epidemic. That sounds optimistic, given that the much tighter lockdown in Wuhan will have been in effect for ten weeks by the time it is lifted in early April. Still, you'd think that if a US President was told that a ten-week near-shutdown of the economy would end the epidemic, he'd be a fool not to go along with that, right? Uh oh.
This is important because we hear Donald Trump, with his mayfly attention span and his disdain for expert advice, is looking for ways to "open up" the economy again as soon as next week, after an unevenly-enforced 15-day partial shutdown. If a large number of people really are afraid to fly and afraid of wider social contact because of fears about COVID-19, it's altogether possible that any premature attempt by Trump to get things back to normal might simply fail.
Of course, in today's divided America, things are unlikely to be that simple. State Governors who have more aggressively shut things down in their jurisdictions, led by Andrew Cuomo in New York, would strenuously resist any order from the White House that they considered dangerous. However, die-hard Trump voters in those states would undoubtedly take Trump at his word, trying to resume their normal lives and putting themselves and their fellow citizens at risk.
The real point here is that the choice that Trump seems to imagine he has -- defeat the virus or avoid a recession -- doesn't actually exist. If everyone is herded back to the factories and malls next week, the spread of the virus will accelerate sharply. That's not a recipe for avoiding recession -- very much the opposite, in fact. Some of Trump's fellow Republicans seem to grasp this very clearly: here, for example, is a tweet from Rep. Liz Cheney:
"There will be no normally functioning economy if our hospitals are overwhelmed and thousands of Americans of all ages, including our doctors and nurses, lay dying because we have failed to do what's necessary to stop the virus."
Indeed. And while we're over at Twitter, here's an excellent observation from former England soccer player Gary Lineker:
"If we stay at home and do as we’re asked, we won’t have to stay at home and do as we’re asked for anywhere near as long."
There was a doctor on CNN this morning claiming that five weeks of aggressive social distancing and testing would be enough to knock out the epidemic. That sounds optimistic, given that the much tighter lockdown in Wuhan will have been in effect for ten weeks by the time it is lifted in early April. Still, you'd think that if a US President was told that a ten-week near-shutdown of the economy would end the epidemic, he'd be a fool not to go along with that, right? Uh oh.
Monday 16 March 2020
Fire all of the guns at once*
The Federal Reserve took the quite extraordinary step of announcing a huge program of monetary stimulus, including near-zero interest rates and as bond buyback, on Sunday afternoon. Donald Trump was very happy, and joined the daily White House coronavirus presser to say so: "people in the market should be very thrilled".
People in the market, alas, demurred rather strongly. Global stock futures began to skid right after the Fed move and Trump's endorsement of it. When Wall Street reopened for trading on Monday it was pure carnage, with the so-called circuit breaker, designed to curb excessive moves in the indices, hit within moments of the open.
This morning on Twitter a sagacious commentator (OK, it was me) opined that: Right now, recession is regrettable but unavoidable. Mass deaths are tragic but avoidable. Policy decisions need to be made accordingly. Donald Trump, always transactional in his approach, simply doesn't get that. He still appears to be in denial about the real state of the epidemic, and still appears to believe that what's needed most is to stop the selloff in equity markets and prevent the economy from slipping into recession.
That approach is going to fail on both counts, and "people in the market" know it. In fact, the experience of China should make it blindingly obvious that focusing on the actual epidemic at the expense of all else is exactly the correct approach. Shutting down Wuhan and the rest of Hubei Province created a big short-term hit to the Chinese economy, but less than three months later things there are rapidly getting back to normal. The US approach -- basically, use up all of your stimulus tools at once while virtually ignoring the advice of the WHO ("test, test, test") -- looks all but certain to result in a much more widespread and long lasting epidemic. That's very bad for the economy, and that's what the markets are pricing in right now.
In the absence of anything like real leadership from Washington, state and local authorities are stepping into the breach. New York City, to take one important example, is rapidly heading into lockdown, with schools, theatres and restaurants all closed. As that sort of thing is replicated right across the country, the path of the epidemic will gradually change, though even at best that will take a few more weeks. And when that happens, of course, we all know who will step up to try and take all the credit.
* Steppenwolf, Born to be Wild. Perhaps ominously, the next line is "and explode into space"!
UPDATE, March 17: Watching the latest coronavirus press briefing from the White House, and it's clear that Donald Trump finally gets it. Basically saying, let's not worry about a recession right now. Combat the virus, keep people alive, work to make the outbreak as short as possible, and then the economy will come back strong. Yes, sir!
People in the market, alas, demurred rather strongly. Global stock futures began to skid right after the Fed move and Trump's endorsement of it. When Wall Street reopened for trading on Monday it was pure carnage, with the so-called circuit breaker, designed to curb excessive moves in the indices, hit within moments of the open.
This morning on Twitter a sagacious commentator (OK, it was me) opined that: Right now, recession is regrettable but unavoidable. Mass deaths are tragic but avoidable. Policy decisions need to be made accordingly. Donald Trump, always transactional in his approach, simply doesn't get that. He still appears to be in denial about the real state of the epidemic, and still appears to believe that what's needed most is to stop the selloff in equity markets and prevent the economy from slipping into recession.
That approach is going to fail on both counts, and "people in the market" know it. In fact, the experience of China should make it blindingly obvious that focusing on the actual epidemic at the expense of all else is exactly the correct approach. Shutting down Wuhan and the rest of Hubei Province created a big short-term hit to the Chinese economy, but less than three months later things there are rapidly getting back to normal. The US approach -- basically, use up all of your stimulus tools at once while virtually ignoring the advice of the WHO ("test, test, test") -- looks all but certain to result in a much more widespread and long lasting epidemic. That's very bad for the economy, and that's what the markets are pricing in right now.
In the absence of anything like real leadership from Washington, state and local authorities are stepping into the breach. New York City, to take one important example, is rapidly heading into lockdown, with schools, theatres and restaurants all closed. As that sort of thing is replicated right across the country, the path of the epidemic will gradually change, though even at best that will take a few more weeks. And when that happens, of course, we all know who will step up to try and take all the credit.
* Steppenwolf, Born to be Wild. Perhaps ominously, the next line is "and explode into space"!
UPDATE, March 17: Watching the latest coronavirus press briefing from the White House, and it's clear that Donald Trump finally gets it. Basically saying, let's not worry about a recession right now. Combat the virus, keep people alive, work to make the outbreak as short as possible, and then the economy will come back strong. Yes, sir!
Thursday 12 March 2020
And you always show up late*
I admit that as I watched the Trump administration's inept approach to the coronavirus outbreak, my first response was an uncharitable one. I mean, any student of history knows that the US showed up very late for two world wars, so why should the global fight against a new virus be any different?
Then for a brief while, I had a more positive thought. Sure, the US stayed out of both wars until the initial combatants were exhausted, but once America entered those wars, the outcome became just about inevitable. Once Trump started taking coronavirus seriously, the country would pull out all the stops and the tide would start to turn, right?
And then....Trump's Oval Office speech last night. We should not, I suppose, be surprised that his focus seemed to be on finding someone to blame -- China! the Europeans! -- after all, blaming people is what he does. Nor should we be surprised that the first step he announced was a total ban on travel from most of Europe to the US, because putting up barriers is what he does. Nor should we be surprised that he incorrectly described the travel ban, leaving the Department of Homeland Security to walk most of it back overnight, because mis-speaking is what he does.
What is slightly surprising and potentially lethal is that beyond the largely symbolic travel ban, he had so little to offer. The payroll tax cut, already trailed earlier in the week, seems dead on arrival, with even the normally compliant Senate Republicans unwilling to go along. It still seems that Trump's main concern is to prevent a recession, or rather to stop the massacre in the stock market, and the astounding further sell-off in markets overnight and this morning is evidence that he is abjectly failing at that.
Trying to prevent a recession is not Job One here -- you don't need to look at the stock indices to know that it's probably too late for that. The US needs to catch up to other countries in testing for the virus, and Trump had nothing to say about that. And it need to start preparing for the kind of "social distancing" that effectively stopped the virus in its tracks in Hubei Province, and is now being attempted in Italy.
In the absence of proper leadership from Trump -- although I have to say Mike Pence is doing his best here -- it's up to others to do what the White House won't. The effective quarantining of New Rochelle, NY at the instigation of Governor Cuomo may be just the first of many such developments. Schools are closing, universities are going all-online and sports are suspending their seasons, providing the sort of social distancing that the administration seems scared even to mention.
The United States will "get through this", as Trump said last night, but as and when it does, it will be no thanks to anything he and his team have done so far.
* First Warren Zevon line I've been able to use in a while, from "The French Inhaler". Whole couplet might have been written about Trump" "you just can't concentrate/and you always show up late".
Then for a brief while, I had a more positive thought. Sure, the US stayed out of both wars until the initial combatants were exhausted, but once America entered those wars, the outcome became just about inevitable. Once Trump started taking coronavirus seriously, the country would pull out all the stops and the tide would start to turn, right?
And then....Trump's Oval Office speech last night. We should not, I suppose, be surprised that his focus seemed to be on finding someone to blame -- China! the Europeans! -- after all, blaming people is what he does. Nor should we be surprised that the first step he announced was a total ban on travel from most of Europe to the US, because putting up barriers is what he does. Nor should we be surprised that he incorrectly described the travel ban, leaving the Department of Homeland Security to walk most of it back overnight, because mis-speaking is what he does.
What is slightly surprising and potentially lethal is that beyond the largely symbolic travel ban, he had so little to offer. The payroll tax cut, already trailed earlier in the week, seems dead on arrival, with even the normally compliant Senate Republicans unwilling to go along. It still seems that Trump's main concern is to prevent a recession, or rather to stop the massacre in the stock market, and the astounding further sell-off in markets overnight and this morning is evidence that he is abjectly failing at that.
Trying to prevent a recession is not Job One here -- you don't need to look at the stock indices to know that it's probably too late for that. The US needs to catch up to other countries in testing for the virus, and Trump had nothing to say about that. And it need to start preparing for the kind of "social distancing" that effectively stopped the virus in its tracks in Hubei Province, and is now being attempted in Italy.
In the absence of proper leadership from Trump -- although I have to say Mike Pence is doing his best here -- it's up to others to do what the White House won't. The effective quarantining of New Rochelle, NY at the instigation of Governor Cuomo may be just the first of many such developments. Schools are closing, universities are going all-online and sports are suspending their seasons, providing the sort of social distancing that the administration seems scared even to mention.
The United States will "get through this", as Trump said last night, but as and when it does, it will be no thanks to anything he and his team have done so far.
* First Warren Zevon line I've been able to use in a while, from "The French Inhaler". Whole couplet might have been written about Trump" "you just can't concentrate/and you always show up late".
Tuesday 10 March 2020
Shock therapy
Governments and central banks around the world are unveiling their policy responses to the coronavirus threat. The Federal Reserve has led the way in cutting rates and Donald Trump has promised a response from the government, although he still seems more exercised by the fall in stock prices than by the threat of the virus itself. Italy has basically locked itself down and at the same time has suspended all household mortgage payments in order to ease any possible pressure on family budgets.
With CNN and the other 24-hour news outlets seemingly intent on stirring up panic, these official responses were probably inevitable. That said, it is far from clear that a global recession can be avoided, and not at all obvious that there are any policy responses that can ensure that any recession is short-lived.
Economists make a distinction between demand shocks, for example events such as hurricanes or earthquakes that lead to a sudden fall in demand, and supply shocks, events such as the long-ago OPEC oil embargoes that lead to a sudden price rise or physical shortages of a key commodity. Governments are reasonably adept at dealing with demand shocks*, through emergency financial and reconstruction aid and such; demand shocks tend to be relatively short in duration. Supply shocks are another matter: the response to those OPEC embargoes was horribly botched, directly contributing to the endemic inflation problems of the 1980s.
What the global economy faces now is without precedent: at once both a demand and a supply shock, yet not quite exactly either. The draconian lockdown in Hubei Province has dramatically slowed the spread of the virus there, but at the cost of a serious deceleration in the Chinese economy. Thanks to globalization, that deceleration has rapidly produced problems and shortages in global supply chains. If other countries in Europe follow Italy in announcing quarantines of their own, and even more seriously if the same happens in parts of the United States, global growth is bound to go into reverse.
This is not to say that policy is impotent here. Reductions in interest rates will make it easier for heavily-indebted households and businesses to cope with any squeeze on cashflow -- though there is also a risk that they will boost property prices bubbles and yes, Toronto housing market, I'm looking at you. Measures by governments to protect household incomes, for example by extending paid sick leave, would both keep families afloat and help slow the spread of the disease.
What is much less clear is that outright fiscal stimulus would be effective. If you give businesses more money in current circumstances, they aren't likely to undertake new investments or ramp up production -- they will probably sock it away in case things get even worse. And if you give more money to households, what are they going to spend it on (apart, perhaps, from more toilet paper)?
Sporting events and concerts are being canceled left and right; it can't be long before theatres and restaurants start to feel the pinch, or even get closed down by the authorities as a precaution. If you gave every Italian family 100,000 euros right now, they wouldn't go out and spend it. They would put it in the bank and then rush out to spend it once the crisis passed -- at which point you'd have an inflation problem on your hands.
It's important for governments to be seen to have a plan here; that's why the muddled response to the crisis in the US and in Japan has been so dangerous. It's that old saw about having nothing to fear but fear itself: as long as governments seem to have an idea of what they are doing, the public is likely to be reassured, to "keep calm and carry on". However, it's important for governments not to attack the wrong problem. A recession isn't the worst outcome here: millions of people dying is.
* The people of Puerto Rico might well disagree, but as a generalization this is true.
With CNN and the other 24-hour news outlets seemingly intent on stirring up panic, these official responses were probably inevitable. That said, it is far from clear that a global recession can be avoided, and not at all obvious that there are any policy responses that can ensure that any recession is short-lived.
Economists make a distinction between demand shocks, for example events such as hurricanes or earthquakes that lead to a sudden fall in demand, and supply shocks, events such as the long-ago OPEC oil embargoes that lead to a sudden price rise or physical shortages of a key commodity. Governments are reasonably adept at dealing with demand shocks*, through emergency financial and reconstruction aid and such; demand shocks tend to be relatively short in duration. Supply shocks are another matter: the response to those OPEC embargoes was horribly botched, directly contributing to the endemic inflation problems of the 1980s.
What the global economy faces now is without precedent: at once both a demand and a supply shock, yet not quite exactly either. The draconian lockdown in Hubei Province has dramatically slowed the spread of the virus there, but at the cost of a serious deceleration in the Chinese economy. Thanks to globalization, that deceleration has rapidly produced problems and shortages in global supply chains. If other countries in Europe follow Italy in announcing quarantines of their own, and even more seriously if the same happens in parts of the United States, global growth is bound to go into reverse.
This is not to say that policy is impotent here. Reductions in interest rates will make it easier for heavily-indebted households and businesses to cope with any squeeze on cashflow -- though there is also a risk that they will boost property prices bubbles and yes, Toronto housing market, I'm looking at you. Measures by governments to protect household incomes, for example by extending paid sick leave, would both keep families afloat and help slow the spread of the disease.
What is much less clear is that outright fiscal stimulus would be effective. If you give businesses more money in current circumstances, they aren't likely to undertake new investments or ramp up production -- they will probably sock it away in case things get even worse. And if you give more money to households, what are they going to spend it on (apart, perhaps, from more toilet paper)?
Sporting events and concerts are being canceled left and right; it can't be long before theatres and restaurants start to feel the pinch, or even get closed down by the authorities as a precaution. If you gave every Italian family 100,000 euros right now, they wouldn't go out and spend it. They would put it in the bank and then rush out to spend it once the crisis passed -- at which point you'd have an inflation problem on your hands.
It's important for governments to be seen to have a plan here; that's why the muddled response to the crisis in the US and in Japan has been so dangerous. It's that old saw about having nothing to fear but fear itself: as long as governments seem to have an idea of what they are doing, the public is likely to be reassured, to "keep calm and carry on". However, it's important for governments not to attack the wrong problem. A recession isn't the worst outcome here: millions of people dying is.
* The people of Puerto Rico might well disagree, but as a generalization this is true.
Friday 6 March 2020
Hard to figure
The blows have been raining down thick and fast on the Canadian economy for many months. Industrial output, business investment and exports have been weak. Statistics Canada just reported that real GDP growth fell to an annualized crawl of 0.3 percent in the final quarter of 2019. This week the Bank of Canada instituted a 50 bp rate cut, and Governor Stephen Poloz followed up with a speech warning that the slow growth is set to persist at least in the near term, dragged down bu rail blockades, coronavirus, low resource prices and more.
So how to explain this? Today Statistics Canada reported that the economy added 30,000 jobs in February, a result which it bizarrely described as "little changed", even though it is a larger increase than the average reported over the past twelve months. The unemployment rate edged up to 5.6 percent, solely because more workers were searching for jobs in the month, something that does not tend to happen when the job market is perceived as weak.
The details of the report were also generally positive. There were almost 38,000 new full time jobs in the month, offset by a small loss of part-time positions. Employment grew particularly strongly in wholesale and retail trade, and there was a significant rise in manufacturing jobs. Year-on-year wage gains remain north of 4 percent, well above the rate of inflation.
Employment is generally regarded as a lagging indicator of economic activity. However, relying on that to explain the strong jobs data is a stretch, given that the economy has been posting below-trend growth since the middle of 2019 -- just how long are those lags supposed to be? Seasonal adjustment issues may be at play here, always a factor to consider in light of Canada's extremes of climate, although there were no particular weather events in February that might have thrown things off. The standard error for the estimated employment gain is almost exactly equal to the gain itself, but that is not unusual with this notoriously volatile data series.
Today's data are welcome but do not suggest that the job of policymakers will become any easier in the months ahead. The rail blockades have all been lifted, at least for now, but the impact of coronavirus is only starting to be felt. Governor Poloz has already made his move, and it is to be expected that Finance Minister Bill Morneau will soon follow up with a fiscal package. Despite the February employment data, the economy is going to need all the help it can get.
So how to explain this? Today Statistics Canada reported that the economy added 30,000 jobs in February, a result which it bizarrely described as "little changed", even though it is a larger increase than the average reported over the past twelve months. The unemployment rate edged up to 5.6 percent, solely because more workers were searching for jobs in the month, something that does not tend to happen when the job market is perceived as weak.
The details of the report were also generally positive. There were almost 38,000 new full time jobs in the month, offset by a small loss of part-time positions. Employment grew particularly strongly in wholesale and retail trade, and there was a significant rise in manufacturing jobs. Year-on-year wage gains remain north of 4 percent, well above the rate of inflation.
Employment is generally regarded as a lagging indicator of economic activity. However, relying on that to explain the strong jobs data is a stretch, given that the economy has been posting below-trend growth since the middle of 2019 -- just how long are those lags supposed to be? Seasonal adjustment issues may be at play here, always a factor to consider in light of Canada's extremes of climate, although there were no particular weather events in February that might have thrown things off. The standard error for the estimated employment gain is almost exactly equal to the gain itself, but that is not unusual with this notoriously volatile data series.
Today's data are welcome but do not suggest that the job of policymakers will become any easier in the months ahead. The rail blockades have all been lifted, at least for now, but the impact of coronavirus is only starting to be felt. Governor Poloz has already made his move, and it is to be expected that Finance Minister Bill Morneau will soon follow up with a fiscal package. Despite the February employment data, the economy is going to need all the help it can get.
Tuesday 3 March 2020
Rate cuts: inevitable but pointless?
As expected, central banks are starting to cut interest rates in the hope of mitigating the economic impact of the COVID-19 virus. The Reserve Bank of Australia, never quick to ease, cut its benchmark rate by 25 basis points earlier today, and the US Federal Reserve just weighed in with a 50 bp cut. Others are bound to follow, and for the moment financial markets are breathing a sigh of relief.
However, as this article points out, it's unlikely that rate cuts can do much to prevent the global economy from slipping into a phase of negative growth. Globalization over the past two decades, and in particular the shift of manufacturing activity to China, means that the COVID-19 outbreak there, even as evidence suggests the worst may be over, is having serious ripple effects across the world. Moreover, the rapid growth in global tourism in recent years has not simply come to a screeching halt, but gone sharply into reverse, with airline and cruise bookings plummeting.
If I take a look at my own small corner of the world, I can see only dire events ahead for the economy. My own little town welcomes about 3 million tourists a year. Niagara Falls, just down the road, gets closer to 20 million. Every day from April to October, our expressways and main roads see convoys of buses from Toronto, the majority of them festooned with Mandarin or Korean script. That will not be happening this year, and the effect on everything from souvenir shops to restaurants to wineries will be severe.
Or consider another bastion of our tourist offering, the renowned Shaw Festival. About 250,000 seats are sold each year, and most of the out-of-town visitors stay in hotels or B&Bs for at least one or two nights and eat out in our multitudinous restaurants. It's quite possible that the Shaw will be required to close for health reasons, and even if it isn't, a large number of potential playgoers will undoubtedly choose to forgo attendance this season out of an abundance of caution.
Look around the world and you can see signs of the same thing happening just about everywhere. For example the outbreak in Italy, the most severe outside Asia, just happens to have hit the northern part of the country, home to much of the vitally important tourist industry and to most of the manufacturing sector. There really is nothing that central banks can do about this -- though, abiding by the appropriately Hippocratic instruction to "first, do no harm", they have no choice but to make whatever efforts they can.
UPDATE, March 4: The Bank of Canada matched the Fed's move with a 50 basis point cut of its own this morning. This was a scheduled meeting day, but the Bank generally prefers to adjust rates only on days when it releases an updated Monetary Policy Report. The next such report is due in April, so the fact that the announcement has come early, combined with the scale of the move itself, underscores the Bank's concern.
However, as this article points out, it's unlikely that rate cuts can do much to prevent the global economy from slipping into a phase of negative growth. Globalization over the past two decades, and in particular the shift of manufacturing activity to China, means that the COVID-19 outbreak there, even as evidence suggests the worst may be over, is having serious ripple effects across the world. Moreover, the rapid growth in global tourism in recent years has not simply come to a screeching halt, but gone sharply into reverse, with airline and cruise bookings plummeting.
If I take a look at my own small corner of the world, I can see only dire events ahead for the economy. My own little town welcomes about 3 million tourists a year. Niagara Falls, just down the road, gets closer to 20 million. Every day from April to October, our expressways and main roads see convoys of buses from Toronto, the majority of them festooned with Mandarin or Korean script. That will not be happening this year, and the effect on everything from souvenir shops to restaurants to wineries will be severe.
Or consider another bastion of our tourist offering, the renowned Shaw Festival. About 250,000 seats are sold each year, and most of the out-of-town visitors stay in hotels or B&Bs for at least one or two nights and eat out in our multitudinous restaurants. It's quite possible that the Shaw will be required to close for health reasons, and even if it isn't, a large number of potential playgoers will undoubtedly choose to forgo attendance this season out of an abundance of caution.
Look around the world and you can see signs of the same thing happening just about everywhere. For example the outbreak in Italy, the most severe outside Asia, just happens to have hit the northern part of the country, home to much of the vitally important tourist industry and to most of the manufacturing sector. There really is nothing that central banks can do about this -- though, abiding by the appropriately Hippocratic instruction to "first, do no harm", they have no choice but to make whatever efforts they can.
UPDATE, March 4: The Bank of Canada matched the Fed's move with a 50 basis point cut of its own this morning. This was a scheduled meeting day, but the Bank generally prefers to adjust rates only on days when it releases an updated Monetary Policy Report. The next such report is due in April, so the fact that the announcement has come early, combined with the scale of the move itself, underscores the Bank's concern.
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