The Economic Revolution: 3 Ways Covid19 is Shaping the Economy of the Future

Markus Muhs - May 07, 2020
A lot of people are making predictions of what a post-Covid19 world looks like: We’ll never shake hands again, we’ll never go on cruise ships again, massive events are out of the question, masks everywhere!

There are of course a lot of dire economic predictions to go along with it: even when we get the all-clear to return to normal lives (phase 3 or 4, or whatever, in what seems to be becoming the global standard of “opening up the economy again”) will we want to go to movies, eat out as much, vacation?

Of course, there are always people out there looking for the next recession/depression and journalists more than willing to write some sensationalist story around such predictions. I believe, however, that many years from now, when we look back at history, we’ll recognize this point in time not as the start of some kind of “dark” period but as more of a watershed moment in terms of technological disruption; perhaps even a very crucial moment in this, the “fourth industrial revolution” as it has come to be known by some.

Let’s try to ascertain our economical baseline first: where were we in the economic cycle going into the Covid19 pandemic? Generally speaking, we were on the up-trend economically, with economic conditions nowhere near what they tend to be when an economic cycle tops out and a structural recession takes hold. Such conditions tend to be: high inflation and interest rates (nope), high commodity prices (we’re at lows), high employment, and labor shortages (we were kind of there, but advances in AI and automation were easing this stress). Furthermore, we are in the midst of an overall demographic trend, with a large demographic cohort (the millennials) reaching their ages of household formation, higher earning, and higher spending and that trend will continue for at least another decade. In other words, the consumer wasn’t tapped out and businesses were still growing.

Covid19 threw a figurative wrench into the economic engine, bringing large parts of the economy to a halt. It didn’t bring the whole economy to a standstill though. Consumers are still spending, though quite a bit less on discretionary costs for now. Many have lost their jobs, but at the same time governments around the world have significantly ramped up spending and in many cases unemployed consumers have a higher unemployment income than they would have traditionally collected from UI/EI type benefits.

Further, I don’t think what we’re witnessing is an overall economic standstill, but rather mass technological disruption that is—unfortunately—leaving large numbers unemployed, at least temporarily, but in the process is shaping the economy of the future and shifting how we spend money. We’re seeing it right now in stock prices; while stocks in some traditional industries are still significantly underwater from the February/March sell-off, some tech stocks are actually forging new all-time highs. It really is putting some long-held market beliefs to the test, one being that stocks at sky-high price/earnings multiples are prone to do worst during recessions, the other being that tech stocks are inherently “riskier” than more traditional sectors. Markets are proving otherwise; in fact if you look at the tech-heavy Nasdaq index over the past decade, the risk/return trade-off has been massively favorable compared to the S&P500 (much higher returns in good years, smaller, almost non-existent losses in bad years). In fact, at the time of writing the Nasdaq is actually positive for the year!

A note: any companies mentioned are not to be construed as stock recommendations. As great as their businesses might be, the risk in purchasing any stock is a factor of the price on the day you purchase it, so I can’t be certain that any of these companies aren’t massively overvalued, and thus super-risky, at the time you read this.




We’ve become accustomed to disruption in one particular area over the past decade, that of traditional retail, and the literal armageddon it has been experiencing. Before the pandemic had me working from home, I walked through a downtown mall every day on the way from my parking garage to the office, and over the past 5 years I’ve noticed store after store close down, get boarded up. When life gets back to “normal” I wouldn’t be surprised to see quite a few more gone, for good. This pandemic has basically set up Amazon for the kill-shot. It’s unfortunate, especially for local businesses, but the model of retail distribution for the future has been set and it’s just a matter of time till traditional retail goes almost extinct. At this very point in time that I write this, why would anyone risk their lives going to a store in person to browse merchandise when it can be purchased with a few clicks from the comfort of home? What the pandemic has done is force adoption of online retail, even for that segment of the population that has been a late adopter, or tried all they could to keep supporting local.



Not all is lost for smaller retail, because technology has sprung up to help even the smallest retail outlets adapt to this new future. Companies like Shopify (now the largest publicly traded company in Canada, succeeding Royal Bank) are making it easier than ever for just about anyone to open an online store and engage in the same efficient e-commerce we’ve come accustomed to from Amazon. Again, if there were any troglodyte businesses going into this pandemic, they’re either forced to adapt, or they’re toast.

This past weekend I ordered beer online from a craft brewery in Red Deer that I visited last summer. It arrived in a day! This not only demonstrates smaller businesses adapting to change, but legislation as well, as I don’t think this was legally possible pre-Covid (and I sure as heck hope it doesn’t change back!). This can be a phenomenal boon for those smaller craft brewers and distilleries whose biggest challenge has been getting shelf space at liquor stores.

With technological adaptation I don’t think all retail needs to succumb to the mighty Amazon, but one thing I do think, is that commercial real estate will significantly change. I don’t think you need to run out and sell your REITs but I believe we will see a complete stoppage in any expansion in commercial real estate for a long time, whether it be shopping malls (which were already going extinct), strip malls, or other power centers (ie: South Edmonton Common).



In late February, our firm was already making preparations to work from home and by the second week of March most of us were getting cozy in our home offices. Myself, I’ve already been adapting my business more for a remote client base, with clients across Alberta, B.C., even Ontario, utilizing apps like JoinMe and Zoom to keep in touch and do financial planning presentations for my clients. Zoom has become ever-more crucial in the Covid-era, for a lot of service businesses, represented in its ballooning share price. As in retail, those service businesses that can’t adapt will be left behind in the dust.

It’s incredibly fortunate that technology has advanced as far as it has before this pandemic sunk in. When I was a kid I would have thought that video communication would have been far more proliferate by now (it was, after all, how Marty McFly communicated with—and got fired—by his boss in Back to the Future II). It had been disappointing thus far how slow we were to adopt video communications. Perhaps we just didn’t see the need, or we valued our privacy and preferred to just stick to texting and the occasional voice call on the phone. I think a combination of need for more in depth collaboration online, as well as general loneliness in self-isolation, might be what is spurring the will and the comfort level in video communication.



Thanks to such technology, many businesses, which otherwise would have been extremely challenged by stay at home orders, have been able to continue operating more or less business as usual. Myself, I’ve continued to review financial plans with clients, coach them around market volatility by sharing with them charts of past market crashes, and I even took on a few new clients in the past while. Many of our back-office functions are also continuing in a work from home environment.

This has a lot of companies with excessive office real estate footprints at the cores of major cities around the world thinking: do we really need that much office space? Couldn’t some of these job functions be performed by people from their own homes, thereby saving staff in commuting/parking costs, improving their work-life balance, and save everyone time? As a side-effect, could this make our company look good from an ESG (Environmental, Social, Governance) perspective in terms of CO2 reductions from reduced employee transportation?

Again, the downside for the greater economy is that I think we’ll see ever-higher vacancy rates in downtown office real estate. Soon every major city will have vacancy rates like Edmonton and Calgary. This will mean less construction of new towers, however it could have some beneficial off-shoots. Rents will have to come way down, and this could facilitate the start-up of new businesses by lowering cost of entry. There could also be a construction boom in building re-purposing as many of the less than prime office towers get converted into residential lofts. Win-win is that many businesses, with smaller (and less costly per square foot) office rents will see the benefit to their bottom line, while their staff will too. Myself, I usually drive over 1000km per month commuting to work and pay $260/mo in parking. In April I drove a grand total of 183km and paid $20 in parking for the few times I went in to the office to do some paperwork.

Travel & Entertainment


These industries are probably hurting the most right now, and I believe that the hurt will continue long into the future.

Let’s start with travel: back in February, when I flew to Belize (seems like a year ago now), I started to take note of just how cramped economy class is in airplanes these days. I mean truly more than ever in the past. I had aisle seats each way, and I swear they’ve made the aisles even smaller than in the past. Didn’t 737s in economy used to have 2 and 3 configurations, not 3 seats per side? And I remember back in the day, the aisles could actually be walked through without bumping into everyone along the way. I made the huge mistake of choosing an aisle seat near the back of the plane on the Toronto-Belize leg (because once landed in BZE, the plane exits from both the front and the rear and I wanted to get to the front of the customs line). A mistake because for some reason every person on the plane had to go to the washroom at least once and the lineup for the rear lavatories was constant for the full 4 hour flight, with people trying their best to “squish” by. I swear, I have never been touched (literally) by so many people in such a short time span; had I known there was a global viral pandemic afoot, I would have been freaking out.

Such tight confines on planes just aren’t acceptable going forward. There’s word already that as air travel restrictions get lifted, airlines will be required to leave adjacent seats empty (no middle seat, woot!). I think core to a lot of airlines growing their bottom lines (in the before-times) was the ability to squish more and more people into each plane, from reducing leg and arm room, to narrower aisles, to the slimmer seats, to tinier lavatories. NONE OF THAT IS GOING TO FLY IN THE FUTURE. The consumer just won’t tolerate it, so even once restrictions come off and they can again book passengers into adjacent seats, there will be a demand for more personal space generally. It’s going to mean less profitability for the airlines of course, but it will also mean higher costs for consumers. When considering that we’ve largely benefited from flat to negative inflation of air travel costs for the past few decades, this is probably long overdue.

Probably more painful for the airlines will be a permanent sharp drop in business air travel. Getting back to the forced adoption of videoconferencing: many businesses are realizing that this technology works fine, and they’re becoming comfortable with it, that they don’t need to fly executives around the country for presentations and whatnot. Here at Canaccord Genuity, we’re hearing from our top strategists and analysts on a weekly basis—more than ever before—over Zoom.

Moving on to entertainment, I don’t think in the long term that restaurants and bars will suffer too much. We’ll still want to get together with friends and colleagues and such. One area that I think will suffer permanent damage is movie theaters, as will the movie studios who don’t adapt to this new reality. I think re-opening theaters is phase 3 or 4 of various “re-opening” plans, but you know what: I don’t think I want to enter a crowded movie theater any time soon. I mean, I already go to the theater a lot less often than I used to (when you get older, time speeds up, and the time it takes for a movie to release on premium cable or a streaming service seems much shorter). I don’t think the average consumer is much different, and after waiting out Covid19 I don’t think anyone will be too put off having to wait a few extra months to watch the latest movies at home. 



Movie studios need to get on this fast and adapt their distribution model. I think the days of most of the revenue being made in theaters are past us and if they want to properly monetize their work they need to utilize pay-per-view (cable or streaming) to their fullest. All sorts of movies are being delayed of late, from the latest James Bond to the entire release schedule of new Marvel films, and I think this is entirely the wrong strategy, if these studios think theaters will reopen soon, or that the consumer will keep going to theaters like normal any time soon. Release these films to PPV or create a PPV streaming service, get them out there, collect your revenue, otherwise we end up with a backlog of films and you’ll have a very hard time competing for dollars from those few who will brave going to the movie theater in a few months (if at all).



So anyway, I just wanted to get some of my thoughts out there. Again, the gist of this post is that I don’t see it as a complete stopping of consumer spending, or a massive, deep recession, but more of an upheaval in how we spend. The technological tools for businesses to adapt to this new reality are all out there, thankfully, and those who refuse to adapt will be goners.


All images my own or courtesy of Pixabay