There will be no return to the pre-pandemic normal. Even after a vaccine becomes widely available and governments unwind lockdowns, we are likely to see permanent shifts in the way we work, shop and play, with greater use of digital solutions. We highlight eight structural shifts, some of which were already in train but which the pandemic accelerated.
First, the pandemic has accelerated digitalisation and the growth of e-commerce. Singapore’s share of online sales has jumped permanently higher, boosting the use of digital payments and a shift away from cash. Japan, a heavily cash-based economy, saw a dramatic shift to digital payment because of the fear of handling physical cash.
Second, the proportion of “work from home” workers post-pandemic will be higher. This may even be productivity-enhancing as workers waste less time and energy commuting, while firms save costs from smaller office spaces.
Third, stricter border controls will persist even after the pandemic is over, changing the future of air travel. Virus tests at airports will increase travel costs and time. Many of us will travel less frequently for business, as cheap zoom video calls substitute the need for in-person meetings. Tourism will take longer to recover as a vaccine may not completely eradicate the virus.
Fourth, the pandemic will drive more countries to be more self-sufficient in the areas of food security, medical supplies and key technologies. Vaccine nationalism and the U.S.-China tensions have intensified this shift. China is prioritising investments and major breakthroughs in core technologies to achieve “self-sufficiency” in a range of technologies dominated by the U.S.
Fifth, the pandemic has accelerated the structural shift for multinational companies to diversify their manufacturing supply chains and reduce their dependence on China. ASEAN, particularly Vietnam, saw manufacturing foreign direct investment inflows even during the pandemic.
Sixth, many governments will have to broaden their social safety nets as the pandemic recession had a disproportionately negative impact on lower-wage workers. Many countries were not prepared for the large spike in unemployment rates, which have also fanned social unrests.
Seventh, the role of governments will likely be larger post-pandemic, which could result in higher taxes to finance the expanded role. There is also a push for governments to revive the economy with large public infrastructure projects, capitalising on record-low interest rates.
Eighth, central banks are monetising and financing a greater proportion of fiscal deficits. Both the International Monetary Fund and World Bank are recommending that countries spend their way out of the pandemic and cast fiscal austerity aside. Major central banks have expanded QE while several ASEAN central banks are financing a greater proportion of the fiscal deficit.
The post-pandemic world could face lower long-term global growth as border controls, self-sufficiency and reconfiguration of supply chains will sacrifice some efficiency and past gains from globalisation. The pandemic has accelerated digitalisation, but has also exposed fault lines in supply chains, social safety nets and healthcare infrastructure. Planning for the next virus X or climate emergency will require governments to make bold shifts in investment and institutions. Investors would be well served to prepare for a new normal.
Sources: Singstat, CEIC I November 2020
Source: Bloomberg I November 2020