Deutsche Bank says households and companies will completely change their behaviour after this crisis. There will be no swift recovery.
Deutsche Bank has slammed any hopes of a quick bounce back in the wake of coronavirus lockdowns. Analysts hoped the stock market would recover in a short-and-sharp V-shaped pattern after plunging 34% in a matter of weeks.
Instead, it’s clear this is a long-term crisis. The pandemic and its economic lockdowns will change everything. Deutsche Bank has already predicted a deep recession. Now they’ve released 21 ‘behavioral changes’ that will cause slow growth for months and months to come.
Behavioral changes are the reason why we will not get a V-shaped recovery, and there is not much fiscal policy can do about it.
We all know that consumer confidence and spending is the backbone of the U.S. economy. That’s all about to change. The first eight of Deutsche Bank’s points are all related to household behaviour.
1. Families will start saving more. Just like the Great Depression, families will go into survival mode, saving any spare penny and avoiding unnecessary expenses.
2. Spaced out seating in public places. This virus will change our public spaces. Restaurants, cinemas, planes, and sports events will increase spaces between seats, forcing lower revenues.
3. People aren’t going on holiday. Fewer people will travel until there’s a vaccine or therapeutic available.
4. Older generations stay at home. Lockdowns might ease, but the vulnerable will likely stay at home, spending less.
5. Supermarkets limit numbers. In the short-medium term, shops will continue to impose restrictions, pushing down revenues.
6. People stop going to the gym. Through fear of picking up germs and new established home routines.
7. People avoid public transport.
8. Health insurance premiums will go up. Pushing up the average family’s monthly outgoings and squashing spending.
It’s not just households feeling the pain. Corporate America will struggle to get going again in the coming months. JP Morgan CEO Jamie Dimon echoes Deutsche Bank’s sentiment, saying this downturn has a lot in common with the 2008 crash.
9. Less corporate travel. Resulting in loss of revenue for airlines, hotels, leisure and hospitality industries.
10. Staggered work schedules. Possible decline in productivity and communication.
11. More permanent work from home setups. Short-term disruption to productivity.
12. Fewer share buybacks. Companies purchasing their own stocks were the biggest buyers on the market. That buying pressure will disappear.
13. Health insurance costs rise. Companies will pay more to provide cover for their employees.
14. Pressure on benefits. Companies forced to adopt paid sick leave, health benefits, and benefits for contractors/gig workers.
And, of course, the heavy hand of the government will slow down productivity with over-zealous regulation. Deutsche Bank pinpoints a few notable shifts in the pipeline.
15. Travel restrictions. Some restrictions will stay in place, resulting in longer travel times.
16. Forced cash reserves. Just like banks were forced to boost liquidity ratios after the 2008 crisis, companies and even households may be required to build a cash buffer, forcing them to defer spending or investment.
17. More health care regulation and spending.
18. Increased regulation for retirement homes.
19. Decreased globalization. Nations are more likely to stockpile their own reserves and become less dependent on others. This may dampen global trade.
20. More planning and preparedness. A welcome change, but may divert attention and resources from other sectors.
21. More supply of government bonds. A debt crisis was a concern before the coronavirus pandemic. With unprecedented levels of stimulus, it’s now a much bigger reality.
These behavioral shifts combine to slow down the economy and squash spending habits. No doubt, the economy and the stock market will recover from this crisis. But it will not be swift.
Last modified: September 23, 2020 1:48 PM