Lionsworld Weekly #05
The Possible Post Covid-19 Economic Situation
Life during Covid-19
It has been more than a year since the start of the global covid-19 pandemic. During the pandemic, how we lived, worked, and played were all affected. We adjusted to working from home, attending classes and meetings virtually, shopping and meeting our friends online. Life became different from before, but we learnt to adapt to it.
As vaccines start to be introduced, we are all hoping to get our lives back to normal. However, will life really go back to normal the moment everyone has been vaccinated?
Unfortunately, life may not be able to go back to how it was in the past.
In fact, it is more than likely that after covid-19, the world will start to face an economic downturn and negatively impact all our lives. Let us take a look at the possible post covid-19 economic situation.
1. Lower Spending Power
Due to Covid-19, many were advised to stay indoors. With global lockdowns and safe distancing advisories, many businesses were forced to close temporarily or reduce their manpower by at least half. Borders also closed, causing delays in shipments of raw materials and goods. There was a global slow-down in production rates and consumer expenditure as more stayed at home.
As such, the economy slowed, and many found themselves getting retrenched or receiving salary reductions.
To stimulate the economy during this pandemic, many governments around the world introduced stimulus packages for their local economy. Stimulating the economy drives production rates to increase and encourages consumers to keep on spending more money. In Singapore, several stimulus packages were announced in 2020, such as:
The Unity Budget containing a S$4 billion Stabilization and Support Package that contains a range of measures to cushion the blow of COVID-19 on local businesses and workers.
The Resilience Budget worth a generous S$48.4 billion to support households, help workers stay employed and provide support for businesses to emerge stronger when the economy recovers.
The Solidary Budget with a stimulus package worth S$5.1 billion, targeted at cushioning the impact of the “circuit breaker” on the local workforce and livelihoods of our workers.
These stimulus packages were all aimed at protecting the economy affected by Covid-19 in order to prevent an economic downturn in Singapore.
Singaporeans and local businesses received money from the government to continue to survive and spend. This protects the consumer and allows us to continue to spend as if as we are not affected by the pandemic.
However, there is a limit to how much money be distributed by the government. The funds distributed by governments are typically from 2 sources – either government reserves or by printing new currency. These are not infinite and there is a limit to how much funds can be produced and distributed.
Thus, if covid-19 is prolonged for too long, governments will run out of means to keep stimulating the government. Once Covid-19 ends, it is also highly likely that governments will scale back on their stimulus packages to recover from the high expenditures. This means that the real economic impact of covid-19 will only be felt when the pandemic ends.
Just imagine: if all consumers now have $10 less to spend, the total reduced expenditure globally will be massive.
Once spending power of the consumer is reduced, the producers will then be affected. With lesser consumer demand, the supply required will be reduced as well. Lower production rates would mean lesser revenue for businesses and thus increases the likelihood of businesses closing or conducting retrenchment exercises to reduce expenditure. This again trickle backs to affect the consumer spending power. Thus, the economy will be deeply affected when government stimulus stops after covid-19.
In fact, since governments do not have infinite budgets to provide to their economy, once the pandemic ends, governments will also have to recoup their losses to replenish their reserves slowly. This means that it is also highly likely that governments will start to scale back on their own expenses as well, to save costs. This will in turn affect the economy as well.
In short, after covid-19, it is likely that overall consumer spending power will be lowered. This will in turn lower the demand and supply chain in the economy and lead to further economic downturn.
2. The loss of the physical economy
Covid-19 propelled the world to digitalize quickly. A poll by Twilio showed that 70% of those polled in Singapore and across the world believe that covid-19 has forced their business to move much quicker in adopting online tools.
Businesses brought their retail stores online, while consumers started to get used to online shopping and virtual payments. How work are done has also changed, with more people getting used to working from home and handling all classes and meetings through video calls instead of meeting in person.
As the world recovers from the covid-19, it is not possible for us to regress back to the pre-covid-19 economy. Companies have already digitalized and there is no going back. We have learnt to adapt to living digitally.
This is a problem for the physical stores. As more adapt to living indoors and shopping online, physical retail sales will take a hit when life returns to normal. This will become an incentive for companies to consider downsizing or letting go of their retail units, thereby affecting the occupancy rates for commercial retail units.
As we get used from working in the comfort of our own homes, companies may also choose to downsize their physical offices and allow staff to work from home for prolonged periods even after covid-19. This would also impact the occupancy rates for commercial property as well.
As we turn towards virtual solutions, the commercial property will be affected and become another factor causing the economic downturn.
3. High levels of Inequality in Society
Unfortunately, with every economic downturn, the distribution of wealth will be severely affected. The working class and blue-collared workers will be the first to be hit with pay cuts or even worse, still, retrenchments. Meanwhile, the upper classes will be protected by their wealth such that even with economic downturns, they will still be able to survive and fund themselves financially to weather the storm.
Furthermore, as mentioned in the first point, after the end of the covid-19 pandemic, there will be a cutback on government subsidies and stimulus packages. This means that those who need these funds the most will be cut-off. This will cause the distribution of wealth between the rich and the poor to become more lopsided, deepening the social inequality.
4. Economic Downturn may be Prolonged
In the past, economic downturns typically last about 6 months before the recovery period starts. However, the upcoming economic downturn after covid-19 may last longer than before.
If we look at the past economic downturns, the global economy received a stimulus due to the introduction of new necessities that every human being in the world will require.
For example, in the 1980s, Microsoft launched their computers. Computers started to replace typewriters and companies around the world started to adopt computers in the workplace. This drove a global demand for the computer and acted as a stimulus for the global economy.
The same can be said for the 2008 financial crisis. At the time, smartphones were just introduced into the world. As more applications and uses for smartphones started to be introduced, the necessity of smartphones became more evident. A global market purchasing smartphones to replace their old cellphones caused a huge surge in the economy, stimulating global demand. The surge in demand also encouraged expansion of production and helped the global economy to generate new jobs and income streams. This stimulates the global economy and help it to recover from its downturn.
However, the same cannot be said for the covid-19 pandemic. We have yet to see the invention or introduction of any new technology or product that can likely stimulate the global economy. Smartphones have become too common, and the market is saturated with many models for users to choose from. Smartphone technology has also come to a standstill, with smartphone producers now focusing on improving cameras instead of finding new innovative technologies to differentiate their products.
Without a new product to stimulate global demand and the economy, it will be harder for the economy to recover.
Perhaps you would think that the covid-19 vaccination will be the product that stimulates the global economy. This is partially correct. With a global need for vaccination, billions of vaccines will be required annually. However, unlike the other products that emerged during economic downturns, every person will only require 1 dose a year, whereas for products such as smartphones, a user can easily purchase more than 1 unit or even purchase new units multiple times a year. This means that the demand for vaccine will be far lower. It will not be sufficient to stimulate the economy as effectively.
Without a big enough stimulus to stimulate the global economy, it will be harder to recover.
How can I prepare myself for this upcoming economic downturn?
While an economic downturn is unavoidable, we can find ways to protect ourselves from the effects of the downturn. As mentioned in the earlier point, with every economic downturn, there will be great unbalance in the distribution of wealth. Those who have lesser savings or in the working classes will be the first to be impacted and will suffer the most due to their lack of savings. Meanwhile, the upper classes will be able to protect themselves to weather the downturn because of their savings.
Thus, if you wish to prepare yourself to weather the economic downturn, you need to first ensure that you have enough savings to tide yourself through this period.
Start saving now and ensure that you have enough resources that you can readily turn to in times of need.
It is also this current period that is the most lucrative for new businesses to start. If you see an opportunity to start a small business, you can also choose to start. Earning more now will help to protect you from the future downturn.
As the world starts to recover after the covid-19 pandemic, it is difficult to say that we will be able to return to the world economy and life before covid-19.
We need to start gearing up for the possibilities that may happen and ensure that we are protected from any negative economic situations that may occur