3 reasons why consumer demand is important in post-COVID recovery
- The COVID-19 recession is dominated by the collapse in consumer spending that makes the consumer more important than ever to economic recovery;
- The uneven impact of the pandemic means that the profiles of consumers after the pandemic will be different from before;
- Consumer behavior has also been altered by new behaviors adopted or encouraged by the pandemic.
Consumer spending is the engine of the economy, accounting for about two-thirds of economic activity and underpinning the business roadmap for investing and planning. The COVID-19 pandemic has put consumer spending in the spotlight. Here are three reasons to keep it there:
1. Consumer spending is more important than ever for economic recovery
The pandemic caused an almost immediate consumer shock, resulting in the forced shutdown of the entire consumer services sector. Consumer spending in the United States and major Western European economies (France, Germany and United Kingdom) fell between 11% and 26% respectively in Q2 2020 compared to Q4 2019.
In China, the drop in consumption in the first quarter of 2020 was also severe, by around 17%. The drop in consumption is by far the largest since the Great Depression of the 1930s in the United States and since World War II in Europe. In the United States, the 11% peak-to-peak drop in consumption in 2020 was about five times greater than during the Great Recession of 2007-2009. Unlike past recessions, the decline in consumer spending occurred primarily in services, which contributed between 70% and 90% of the top-to-bottom drop in consumer spending in the United States, Western Europe and Europe. China.
On the other hand, there has been an increase in household savings. In a typical recession, savings rates increase by a few percentage points and remain high for several years during the recovery. This was the case during the Great Recession, when US household savings increased by nearly seven percentage points in five years, as households paid off their mortgages and credit card debt accumulated before 2008. Yet in 2020 , the savings rate climbed 18 percentage points less. over six months, which pushed total U.S. household savings in 2020 to nearly $ 3 trillion, more than double the savings in 2019.
This means that the COVID-19 recession has been dominated by the collapse in consumer spending and rising savings, making the consumer more important than ever as a trigger for investment decisions and economic recovery.
2. The recovery in consumer spending will be uneven
The uneven impact of the pandemic means that there will not be a single uniform recovery in consumer spending; instead, there will be many different recoveries depending on circumstances, geographic areas, age and income. This is because the uneven impact, especially the difference between the high income and low income cohorts, makes the COVID-19 recession different from the Great Recession and that means understanding the path of each consumption segment matters much more. today than in the past.
Our analysis indicates a strong but uneven recovery in consumption in the United States with variations between income and age segments and a more balanced although slower recovery in Europe. Demand from high-income households, which accounted for two-thirds of the decline in consumption and about half of the increase in savings in the United States, will be critical to the strength and speed of the recovery.
However, young, low-income households, who work disproportionately in hard-hit jobs in the service sector and in occupations where digitization and automation are accelerating, are likely to face purchasing power constraints. when the government’s stimulus packages end. As a result, we could see an increasing polarization of consumer demand and an increase in inequality, especially in the United States.
3. Consumer spending will be different after the pandemic
The economic collapse of the 1930s produced a generation of prudent savers. The 1974 oil shock launched a sustainable movement to find energy efficient products and reduce the environmental impact of consumption. The pandemic is sure to leave lasting traces on consumer behavior, as long-standing habits – more spending on services, greater digital adoption, and more time and money spent away from home – have been interrupted, accelerated or reversed.
To determine if these pandemic-induced behaviors could persist, we looked at changes in consumption across consumers’ lifetimes using our stickiness test that takes into account the actions of consumers, businesses, and consumers. governments. The pandemic has accelerated the adoption of digital products and services with a sea change in healthcare, a near doubling of online grocery shopping and widespread adoption of streaming services that will continue.
Additionally, home nesting will remain a sustainable way of life for many, facilitated by high consumer investment rates in home improvement and continued opportunities to work from home. The definition of home now includes work, fitness and entertainment. Our analysis indicates that other behaviors that were discontinued (pleasure air travel, in-person training, and in-person dining) will resume, but with changes such as contactless restaurant menus or the selective use of digital tools in the workplace. education.
While vaccination programs are still being rolled out and there is uncertainty about new variants of the virus, a recovery is coming. It will likely be different from past economic recoveries, as the pandemic is leaving indelible marks on purchasing power and consumer behavior. Now more than ever, it will be important for policymakers and managers to understand how consumer demand evolves across income, age and geography.