The collapse in demand and supply ecosystems which are depleting the savings and increasing the debt levels of households, corporates and the governments might create a channel for a new round of debt crisis.
According to Dun & Bradstreet’s latest Economy Forecast, the changes in consumer behaviour will determine the segments that are likely to flourish after the pandemic is brought under control. The change in the consumer behaviour would drive most of the changes in India.
As India is collectively working towards gaining control over COVID-19 pandemic, during the period of lockdown, and global economy slowdown, the changes in consumer behaviour will shape the course of economic activities going ahead. For most of the markets understanding consumer sentiments will be a big challenge.
There three factors have emerged which will determine and play an important role in shaping the course of economic activity i.e. the longevity of lockdown period, the global recession due to industrial lockdown and the changes in consumer behaviour in the time of ‘social distancing’.
Firstly, the period of lockdown has led to various manufacturing plants to shut or operate below 20% of their capacity utilization. Labour supply has become acute. Amongst the labors, the most impacted are the short-term or temporary migrants who have moved away from their village/town in search of jobs. As per the latest statistics available, there were close to 14 million short term migrants in FY08 and more than 90% of those were of rural origin.
Secondly, the depressed global demand has led to a collapse in the global commodity markets. As per the World Bank, global commodities markets face lasting disruption and the impact has been transmitted from energy to metals and food. The recovery is expected to be the weakest in history.
The collapse in global demand which is depleting the savings and increasing the debt levels of households, corporates and the governments might create a channel for a new round of debt crisis.
As debt levels increase and loans turn bad, the banking sector might face challenges and this can cause a financial turmoil, further depressing the income and widening the inequality levels across the world including India.
Thirdly, the changes in consumer behaviour will determine which sectors/segments are likely to flourish after the pandemic is brought under control.
Even after controlling COVID-19, fear in the minds of people and social distancing norms will impact many sectors and therefore the overall economy. The new economic order post COVID-19 will be different from the one the world has witnessed before the pandemic spread globally impacting more than 185 countries.
The world with new normal norms would entail increase in automation, digitization of all major activities, reshuffling of supply chain and manufacturing hubs globally, emergence of new types of services, change in the way businesses operate besides host of others. Most importantly, the change in the consumer behaviour would drive most of the changes.
Back into poverty
Global Pandemic is underway which has infected more than 2.5 million, killed more than 0.18 million and millions of people globally are being pushed back into poverty. By 2015, only 10% of the world’s people lived in extreme poverty, improving from 36% in 1990. Extreme poverty is defined as consumption (or income) less than US$1.90 a day in 2011 purchasing power parity (PPP).
Worst economic fallout
This gain over the last 25 years, driven by strong global growth and the rising wealth of many developing countries could mostly stand reversed as the IMF predicts the worst economic fallout since the great depression. Governments worldwide have provided fiscal stimulus to the tune of around US$ 8 trillion so far as businesses have come to a standstill, consumption is faltering, savings are being depleted, financial markets are in turmoil and most importantly human lives are impacted.
It remains to be seen how much the loss in the economic activity gets recovered, to what extent the income inequality is being narrowed, the degree to which the productivity levels are restored. This will determine which economies emerge out to be stronger post this crisis.
The Index of Industrial Production (IIP) is expected to have been impacted severely during March 2020 as compared to March 2019. Nationwide lockdown has led to a near halt of all non-essential activities in the industrial sector and supply chains have been significantly disrupted with daily movement of trucks falling to less than 10% of normal levels. Industrial activity is also likely to be impacted during the next two months. Dun & Bradstreet expects the IIP to remain subdued by 0% during Mar 2020.
Depressed global demand has led to a collapse in the global commodity markets. As per the World Bank, global commodities markets face lasting disruption across many sectors from energy to metals and food. The recovery is expected to be the weakest in history. Low commodity prices and low growth prospects are expected to keep inflation low. Dun & Bradstreet expects the Consumer Price Inflation (CPI) to remain in the range of 5.2%-5.4% and Wholesale Price Inflation (WPI) in the range of 0.0%-0.5% during Apr 2020.
Money & Finance
The government’s large borrowing programme and Foreign Institutional Investor (FII) outflows in the debt markets are exerting upward pressure on yields. However, RBI’s infusion of liquidity in the market, the purchase of long-dated government bonds and selling of short-dated treasury bills under open market operations is expected to keep yields low and largely unchanged compared to last month. Dun & Bradstreet expects 15-91-day T-Bill yield to average at around 4.2%-4.4% and 10-year G-sec yield at around 6.2%-6.5% during Apr 2020.
The rupee is expected to witness strong depreciation pressures due to increased risk aversion, strengthening of the dollar, financial outflows and weak stock markets. Dun & Bradstreet expects the rupee to remain at around 76.55 per US$ during Apr-2020.
Consumer Behaviour, Post-Covid Economy, Economic Slowdown, Dun & Bradstreet, Economy Forecast
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