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July 9, 2020

How will the gloomy daily updates on the economy impact consumer confidence?

By GlobalData Consumer

Over the past few months, consumers have become increasingly accustomed to being confronted with scary-looking line graphs amid the Covid-19 pandemic. Whether the line goes up or down, you know it is bad news. Up, and it could be Covid-19 deaths, down, and it could be GDP.

The fact is, however, that the most panic-inducing graphs are yet to come, as government programmes such as VAT freezes, interest-free loans, furlough schemes and quantitative easing to effectively pause the economies of major industrialised nations will soon come to an end. Britain’s debt is now higher than its GDP for the first time since 1963 when the country was rebuilding after the Second World War.

Meanwhile, US unemployment is the highest since the Great Depression. The impact a constant stream of information of this nature has on consumers could spell bad news for the world of fast-moving consumer goods amid the Covid-19 pandemic. Items bought on impulse when out and about will seem less justified in the face of an economic downturn. As was the case in 2008, middle-tier products typically lose out to cheaper alternatives and premium items lose their status as a necessary purchase for many shoppers.

Towards the beginning of the pandemic, there were media narratives, describing an alleged trade-off between the health of the economy and the health of the public. Mainstream orthodoxy appeared to suggest that populations could save the economy by sacrificing their health, by keeping businesses open and weathering the storm (take a quick look at statements from the Governor of Texas for an extreme example).

Indeed, the respective effects on the public’s psyche by graphs, showing the spread of a virus or mass unemployment, are similar. They undermine confidence and cause people to err on the side of caution. The induced agoraphobia of a population by a global pandemic, of course, impacts the economy negatively and spending slows, while corporate and national debt rises. In tandem with this, gloomy economic forecasts and constant references to 2008 and the Great Depression cause people to save more and spend less. It is a double-whammy of financial and bodily fear. The drop in demand caused by a reluctance to venture outside will only be compounded by the context of a major recession.

As housebound customers in the US see job losses pass 40 million and the populations of Europe observe national debt soar and businesses close, a self-preservation instinct to tighten their belts will likely kick in. How long this will last will depend on how the crisis is perceived and portrayed in popular media. But those products that sit seductively next to the check-out may need to further justify their impulsive purchase against the backdrop of perceived widespread economic ruin.

Though a bounce-back is expected, the material reality might take a while to catch up with the perceived state of the economy’s health. Even those in secure employment will have the potential for rising prices in the back of their minds. Saving money instead of spending it is likely to appear the wiser choice for many. We are likely to see certain categories doing better than others moving forward. Premium alcohol products to drink at home and food delivery services that consumers have now become accustomed to are enjoying a spike in demand that will likely stay above pre-lockdown levels.