Five Behaviors That May Change In An Economic Rebound

At a Glance

  • Travel, saving and spending habits will likely change once the rebound from the COVID-19 crisis begins
  • The crisis accentuates the arguments for national governments to insist on domestic production of critical goods

The impact of the Covid-19 pandemic continues to work its way through the global economy, causing a great deal of anxiety and uncertainty across countries and sectors.  But sooner-or-later the world will emerge from this situation.  When the rebound begins, however, chances are that not everything will return to the way it was before.  How will the behavior of individuals and companies change once we are in an economic rebound?

Here are five ways in which consumers and businesses might change how they operate.

Increased Cash Holdings

Shutting down large segments of the global economy has tested social safety nets as never before.  Many nations have broadened unemployment benefits, offered grants so that employers can continue to compensate furloughed workers and provided assistance with rents.

Even so, many individuals may conclude that holding more cash is the best protection against future unexpected disruptions.  That was the conclusion that they reached in the aftermath of the global financial crisis.  In the years prior to that crisis, U.S. savings rates were negative.  Then, starting in 2009, Americans began to save again despite near zero interest rates on bank deposits.  In the aftermath of the current crisis, savings rates might take yet another step higher.

Supply Chains

The globalization of supply lines helped to drive growth during the 1990s and 2000s.  In the past decade, however, international trade stopped growing.  Even before the epidemic broke out, protectionism was already on the rise.

The current crisis accentuates the arguments for national governments to insist on domestic, or at least nearby, production of critical goods and adds a new impetus for the private sector to diversify supply lines as well.

Moreover, one emerging technology that may get a big boost is the ultimate localization-of-production technique: 3D printing.

More Flexible Work

The March-April period has given the world a crash course in virtual internet meetings and working from home. In many service fields, both employees and employers have been awakened to the possibility working from some place other than the office.

Once offices reopen, the world may reach a new equilibrium with more people working from home than before and fewer people driving or taking public transportation to offices.  Moreover, if the economy doesn’t make a speedy recovery, businesses will be under pressure to cut costs and one area in which they can cut is to rent less office space.  This has implications for both energy and real estate markets.

Business Travel

How much of what is accomplished during business travel can be done with communications technologies like virtual internet meetings?  Certainly, there are strong arguments for in-person meetings which facilitate communication in a way that even the best technologies can’t quite match.  When it is deemed safe to travel again, airlines and hotels who cater to business travelers might see a slow recovery. This also has implications for energy consumption as well.

Retail

Even before the pandemic, traditional retail was under tremendous pressure.  For example, in 2019, U.S. shopping mall vacancy rates rose to 10%, surpassing their financial crisis highs.  And that was with the economy at full employment.  Brick and mortar retailers won’t disappear, but landlords may have more difficulty finding tenants for store fronts and shopping malls.

Once the current global crisis eases, many things will go back to normal.  Import/export activity will resume.  Stores will reopen.  People will return to offices and business travel will recommence. However, what looks normal in 2021 or 2022 may look distinctly different than what seemed normal in at the beginning of 2020.

 

Erik Norland is a Senior Economist at CME Group.

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