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Hintzen Administration Consulting

3 reasons why consumer demand matters for the post- Covid- 19 recovery

Consumer spending is the engine of the economy, accounting for about two- thirds of economic activity and underpinning the roadmap for businesses to invest and plan. The COVID-19 pandemic put consumer spending in the spotlight. Here are the reasons to keep it there:

1. Consumer spending is more important than ever the economic recovery

The pandemic caused an almost immediate consumption shock, resulting from the forced shutdown of entire consumer service industries. The drop in consumption is by far the largest since the 1930s great depression in the US and since World War II in Europe. The consumption shock was triggered by lockdowns and health fears that severely curtailed spending on services, setting it apart from past recessions. On the flip side, there was a rise in household savings. This means the COVID-19 recession was dominated by the collapse in consumer spending and the rise in savings, making the consumer more important than ever as a trigger for investment decisions and achieving economic recovery.2. The recovery in consumer spending will be uneven

The uneven impact of the pandemic means there won’t be a single uniform consumer spending recovery; rather there will be many different recoveries based on circumstances, geographies, age and income. Indeed, the uneven impact, especially the difference between high and low-income cohorts, makes the COVID-19 recession different from the Great Recession and that means understanding the path of each consumer segment matters a lot more now than it has in the past.

3. Consumer spending is going to be different after the pandemic

The economic collapse of the 1930s produced a generation of careful savers. The oil price shock of 1974 kick started a lasting movement to look for energy-efficient products and to reduce the environmental impact of consumption. The pandemic is sure to leave lasting marks on consumer behavior as long-standing habits – more spending on services, greater digital adoption and more time and money spent out of the home – have been interrupted, expedited or reversed.

The pandemic hastened the adoption of digital products and services with a step-change in healthcare, a near doubling of online grocery shopping and widespread adoption of streaming services that will continue.

While vaccination programs are still being rolled out and there is uncertainty linked to new variants of the virus, a recovery is coming. It is likely to be different from past economic recoveries as the pandemic leaves indelible marks on consumer purchasing power and behavior. Now more than ever, understanding how consumer demand is shifting by income, age and geography will be important for decision-makers and managers alike.

Source: World Economic Forum

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