More than a year after the deadly COVID outbreak, the world is still waiting for consumers to fully return to their old spending habits. But a new study indicates that the pandemic may have changed some of us forever.
That prediction comes from a working paper by the European Central Bank, which gathered information from 7,750 households in France, Germany, Italy, Spain and The Netherlands. The data, collected after initial restrictions were first lifted in in July 2020, looked at spending across tourism, hospitality, services, retail and public transport.
Many households that cut spending on products and services because of lockdown experiences had “permanently altered their preferences,” said the paper’s authors Alexander Hodbod, Cars Hommes, Stefanie J. Huber and Isabelle Salle.
“Specifically, we observe many households reporting ‘the realization of not missing it’ what they consumed before. ‘Not missing it’ is the second most prominent reason for consumption reductions in France, Germany, and the Netherlands during Summer 2020,” said ECB study’s authors.
“That so many households report ‘not missing’ what they cut back on during lockdown — even after restrictions are lifted — signals that permanent changes to consumer demand may be occurring,” the group said.
The shift was especially large in hospitalization and services sectors. Within the retail sector, a “substantial fraction of households” shifted into online over brick and mortar spending.
Wall Street has started to fret over a slower growth landscape and the possibility that stagflation could replace reflation.
Bank of America recently downgraded its forecasts for European stocks, citing concerns of fading optimism over growth. Goldman Sachs, meanwhile, cut its U.S. growth forecasts for this year and next on worries that some services and non-durable goods spending would remain below pre-pandemic levels into next year.
The ECB found that depending on the sector, households reporting spending “less than before” or “not at all” ranged from 38% to 66%. The biggest percentage was among those who plan to travel less, with 58% of households reporting plans to cut back on public transportation. That was followed by 55% of households reporting a drop in appetite to visit restaurants, bars and cafes, and 46% saying they were visiting physical retail outlets less than before.
“Not missing it” and across all sectors, was the second most powerful driver for households’ reduced consumption in September 2020 for France and Germany, the study noted. And those households were mostly middle-aged, high-income households and least likely to have had a COVID infection experience, the study said.
“The fact that mainly high-income households realized through the lockdown experience, that they do not miss consuming certain things, might reinforce the magnitude of the change in consumption habits,” said the study’s authors.
Three more conclusions came from the study: governments should not assume a snap back to normal once the pandemic is over, as COVID could create “new habits” and a “long-lasting shift in behavior; rather than trying to encourage spending through fiscal measures, governments should laser-target households that have been particularly hard hit; and finally there may be no trade-off to protecting citizens from virus risk and preserving economic prosperity.