It is widely expected that we will not return to the pre-pandemic normal; we will see changes in our lives permanently.
Even after a vaccine becomes available and governments begin unwinding lockdowns and social distancing rules, the world is likely to see permanent shifts in the ways we work, shop and play - with greater use of digital solutions.
Dr Chua Hak Bin, senior economist at Maybank Kim Eng analysed eight structural shifts in a post-Covid world that gives investors a lot of food for thought.
The pandemic has accelerated digitalisation and the adoption of technology. This has sped up the decline of physical retail and growth of e-commerce. For example, Singapore's share of online sales jumped to 25% of total retail sales during the circuit breaker and remains at above 10% after the easing, double the pre-pandemic share.
The online boom has boosted the use of digital payments and shifts away from cash. Even Japan, a heavily cash-based economy, saw a dramatic shift to digital payment during the pandemic because of the fear of handling cash. Several central banks have started experimenting with a digital currency, including China and Singapore.
The proportion of workers working from home (WFH) post-pandemic will likely be higher. The pandemic accelerated remote working and virtual meetings. This may even enhance productivity as workers save commuting time and energy. Firms will save on costs by renting smaller offices. Demand for dedicated offices could shift to homes and co-working spaces.
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 people might travel less frequently post-pandemic for business, as cheap video calls substitute the need for in-person meetings. Tourism will take longer to recover as any vaccine will not completely eradicate the virus.
The pandemic crisis will drive more countries to be more self-sufficient, including for food, medical supplies and key technologies. Vaccine nationalism and the US-China trade war have intensified this shift. China is prioritising investments and major breakthroughs in core technologies to achieve "self-sufficiency" in a range of technological sectors currently dominated by the US. More countries are diversifying their food and medical supply chains.
Supply chain diversification
The pandemic has not altered the structural shift for MNCs to diversify their manufacturing supply chains and reduce their dependence on China. On the contrary, the pandemic has made the case for diversification even more compelling, as many MNCs faced supply disruptions in the early part of the Covid-19 pandemic when China locked down and shut their borders. ASEAN, particularly Vietnam, continues to see manufacturing foreign direct investment inflows during the pandemic.
Broader social safety nets
Many governments will have to review and broaden their social safety nets in the aftermath. The recession has exposed wide cracks as the pandemic had a disproportionately large negative impact on lower-wage workers. Sectors that saw the largest job losses, including retail, F&B, hospitality, recreation and tourism, hire more lower-wage workers. Many countries were not prepared for the large spike in unemployment rates, which also fan social unrest.
Governments' increased involvement
The pandemic has allowed governments to play an expanded role, whether in terms of fiscal support, nationalisation or greater stake in private companies. The size of governments will likely be larger post-pandemic, including in healthcare and infrastructure, which might mean higher taxes to finance the expanded role. There is also a greater push for governments to revive the economy with large public infrastructure projects, capitalising on record low global interest rates.
The pandemic recession has removed the stigma and allowed central banks to monetise and finance a greater proportion of fiscal deficits. Both the IMF and World Bank are recommending countries to spend their way out of the pandemic and cast fiscal austerity aside. Saving lives is more important. Major central banks have expanded quantitative easing and their balance sheets. ASEAN central banks, including in Indonesia, Malaysia, Philippines and Thailand, have relaxed fiscal rules and are financing a greater proportion of the fiscal deficit.
The post-pandemic world will likely face lower global growth, as border controls, self-sufficiency and reconfiguration of supply chains will sacrifice some efficiency and past gains from globalisation.
The pandemic recession has accelerated digitalisation, but has also exposed fault lines in supply chains, social safety nets and healthcare infrastructure. Planning for the next virus or climate emergency will require governments to make bold shifts in investment and institutions in the post-pandemic world while preparing for a new normal.