What does the Economic World look like Post Lockdown?

So much has changed in such a short time - but what changes will emerge post lockdown, and how will they impact the world as we've known it to date? 

2020 will be remembered as the year of the COVID-19 virus – but I think it will also be remembered as the 2020 global recession, and the start of a new way of living in most developed countries. In other words, change is upon us – and with change comes opportunity.

Think about it – what we are seeing is higher rates of illness in cities, because of the greater density of population...and unfortunately the consequential higher rate of deaths from COVID-19. Part of the reaction is a once in a lifetime or generational shift in how we work, how we live and how we shop. A famous quote from Lenin is “There are decades where nothing happens; and there are weeks where decades happen”. The last two weeks of March 2020 are definitely weeks when a decade’s worth of money has been thrown at the UK economy and we are living through huge changes. The change is everywhere because this is a worldwide issue.

As I type, the UK, like a lot of countries around the world is pretty much in lockdown, with some huge and far-reaching consequences.

• We have no option but to work from home rather than from an office – as our workplaces are forcibly closed or we are at home on furlough, leaving only a small proportion of essential workers actually going to a workplace.
• Most shops are closed and those that are open, like supermarkets, have much smaller footfall.
• The online shopping and delivery services are maxed out and many have run out of capacity – some online shopping websites are stuttering under the load and not responding, or have been temporarily paused so you can’t use them for half a day or so.
• The UK government, like many others, is throwing huge amounts of public money into propping up businesses and employees in an attempt to stave off financial catastrophe.
• The number of new claimants on Universal Credit is up around 8 times on normal rates since the beginning of March, at around 55,000 new claims per day.

What do these changes mean and what is next? I think we can look at this from several perspectives:

Working and living

The lockdown has forced most of us to work from home ...and guess what? Most people are finding it OK. Most businesses will appreciate the move from spending on property to spending on IT – and the cost savings that is likely to bring. For some people the change is easy, for some awkward and for others impossible. Working from home is not always good and this change will also highlight the mental health strains of working from home. Will this also mean that localised social activities and sports clubs experience a post-lockdown resurgence?

The density of living cheek-by-jowl in cities and going on crowded public transport has lost its allure; which probably means that fewer people will want to live in cities. In fact, it is likely to mean that cities polarise the rich and the poor even more than they do at the moment, as the middle classes move out. The rich may well become more exclusive in how and where they live. The poor don’t get to choose. A growth area might be the provision of services to the rich. A side effect is that small towns, villages and the countryside generally will regenerate. Because it will take time to build more properties in the desired places, expect middle class city house prices to drop, and village house prices to go up in the short term.

Shopping and business

In the 10 years between 2010 and 2020, online shopping went from 7% of US retail sales to around 16%. In the UK it was more and went from 7% to 21%. Online shopping events like Black Friday, Cyber Monday and Singles Day had an even higher growth pattern. Despite this huge rise in online sales, physical sales grew as well in absolute pound note terms. But in percentage terms physical retail fell from around 95% of all sales to 90% of all sales – a curious exception to this trend is that some online brands opened physical stores.

But in a few short weeks all that has, maybe, changed forever.

Firstly the lockdown means that some businesses are going to go bust. Others are going to be hindered for years by the loans they take on to fund the lockdown. Optimistic forecasts are that UK GDP will shrink by around 5%, pessimists forecast 35% - think redundancies!

In the UK by 2019 the most popular online purchases were clothing and household goods. The last few years of the 2010-2019 decade experienced a number of closures of high street retail shops due to the move from physical to online shopping. The rise in online shopping over the lockdown period is already massive – reports from one large retailer has seen a spike that tailed off into a 40% growth in their online shopping. I think 50% to 75% of all sales will be online shopping rather than 21% the UK had in 2019.

Think this is pie in the sky? Think again. Books are already at around 56% online shopping, office supplies around 30%. However online grocery shopping was only at about 7% - there is a lot of opportunity for all retail sectors and now there is the demand! ...and just to make a point, over half of online shopping is done using a smart phone.

In 2019 bank branches were closing, as were some shopping malls and high street shops, and they all needed to find a new purpose for their buildings and find a way to attract new customers. Post lockdown, some office blocks are probably going to go the same way. Now, in March/April 2020, online shopping and delivery services have been growing and are seeing truly exponential growth. Tip: Don’t invest into commercial property unless it is online shopping and delivery related!

Taxes!

The size of the government bailout to support the UK is not clear cut – I think it will be about a huge ￡522Bn! One forecast is that UK government debt will triple; another is that borrowing could go from 2.4% of GDPR to 20% or more. All this has to be paid back! The effect on Government debt and finances could last a generation.

Obviously this is going to mean tax rises – which has been alluded to by the Chancellor, Rishi Sunak, but not yet quantified. Everyone has benefitted, so it is only fair if everyone helps to pay the bill – and the simplest way to achieve this is to increase income tax from 20% to something more and maybe VAT as well ...and for several years.

Interest rates and inflation

Right now interest rates have been cut in the UK to a historic low. The UK, like most economies, will suffer a period of negative growth due to the lockdown. This downturn will probably be declared a formal recession –and the government’s support package is there to stop it from being a 1930’s type Great Depression! The Bank of England is doing more quantitative easing (or printing money to put into circulation). However, the long term impact is likely to be rising inflation and rising interest rates.

With interest rates as low as they are (0.1%) it is probably the best time ever to borrow – but all that is just as likely to change into higher interest rates. But no one knows when or how quickly. Put simply (and it isn’t!) Interest rates are often increased to counteract inflation - and inflation is a consequence of rising prices, and some prices will fall just as some go up. Your guess is as good as any here and if anyone has a crystal ball, then now is the time to consult it!

Global trade and markets

Companies will always trade globally, but I think we are going to see far more parochialism or even protectionism as we come out of lockdown and recession. Social Media like Linked In is already full of posts about the need for more home grown products rather than importing stuff.

The reduction in international travel forced on the world by the various lockdowns instituted as the virus hit different countries has shown the need for each country to be more reliant on home grown rather than imported items. Even the need to spread production around different areas of the same countries (for example some 75% of the USA’s carrot crop is grown in California).

Innovation and new businesses

We have all seen the rise of innovation in technology – Ai (just think Alexa or Siri), robotics, electric vehicles, robotic grocery delivery, financial apps and the like – as well as the rise of home deliveries and smartphone technology.

What we are about to see is a new way of living in the developed countries, or at least a faster and more universal adoption of technology in living. More online shopping, more apps, more online working from home ...and less bricks and mortar based business.

Working from home brings with it the need for technology, better home desking and seating(!) and the need for social time, especially for home workers.

I think we are going to see a polarisation between on the one hand growth in small and local or online and delivery and on the other hand a consequential reduction in big offices, shops and town centres.

Post lockdown, online shopping is obviously going to grow and grow and click and collect could become far more important than having a giant store to go and browse in.

As ever a bright note comes from innovators and start-up businesses and I predict the lockdown will give people time to start being innovative and creative ...and create new businesses to fuel and service the changing ways of living and working.

It's safe to say the world will not work the same way as it did before COVID-19. But as organisations and individuals adapt to new customs, demands and priorities, there's no doubt that business and enterprise will be leading the evolution into our "new normal".