Economic toll of coronavirus could be unlike anything we’ve seen before

Before the coronavirus crisis began rippling through the global economy, Susan Wang had big plans for 2020.

Not only was she going to buy a new Apple MacBook and iPad, plus a projector so she could host friends for movies at home, but she was set on making a career move.

"I was planning to change my job, but my headhunter told me that all recruitment had been postponed to the second quarter," said the 27-year-old who works for a British company in Hong Kong.

"Our headquarters in London has a plan for redundancy, too. It is better to save some money in case I get laid off."

A photo of Gran Via in Madrid taken on April 1. The coronavirus has turned cities across the world into virtual ghost towns.

As Covid-19 spreads across the world, sending stock markets reeling and prompting companies to slash jobs, Wang has become increasingly frugal like scores of other consumers from China to the United States.

She has stopped eating at restaurants and now tries to keep her weekly food bill under $64. In the past, she wouldn't think twice about spending $13 per meal.

Amid mounting uncertainty, the coronavirus pandemic " which has claimed the lives of more than 48,000 people and infected at least 940,000 worldwide " is fundamentally changing consumer behavior in Asia, Europe and North America.

Consumer experts said the 2008 global financial crisis, the Great Depression that started in 1929 and the September 11 terrorist attacks give some clues about how and when global consumption might recover.

The coronavirus pandemic has led to a sharp decline in retail sales in Hong Kong, a trend that is expected to continue.

But the complexity of this crisis makes this consumer recovery unprecedented and difficult to predict, they added.

"The coronavirus pandemic has completely changed patterns of consumer behavior all over the world. People are afraid, and when people are afraid, they go into survival mode," said Jesse Garcia, a Los Angeles-based consumer psychologist, who is also the CEO of market consulting firm My Marketing Auditors.

Hong Kong's retail sales plummeted a record 44% in February, and those figures are only expected to get worse. Sales in the city are forecast to slump between 30% and 40% in the first half of the year, according to the Hong Kong Retail Management Association.

In the US, retail sales dropped by 0.5% in February, even before many states had issued stay-at-home orders to protect the world's largest economy.

The decline was the biggest fall since December 2018.

Companies that can take advantage of society's move online will likely fair better than offline companies in the coming months.

Experts say non-essential products and services are set to be worst affected by the coronavirus pandemic, while goods and services that can be consumed at home will see a spike in sales.

"Online consumer behavior is frenetic," said Ross Steinman, a professor of psychology at Widener University in the US state of Pennsylvania.

"Consumers are refreshing and refreshing and refreshing websites to secure grocery delivery times, purchase paper towels from their usual big-box retailer and scavenge for rice and canned soup from third-party sellers on Amazon."

"A pronounced spike in coronavirus cases will only amplify the freneticism."

So far, one of the biggest shortages for consumers has been toilet paper. Television stations across the globe have beamed images of empty supermarket shelves and huge lines as people hoard toilet paper rolls, masks and hand sanitizer.

Images of grocery stores with empty toilet paper racks have led to panic buying across the world.

The frantic stockpiling can be explained by a psychological concept called informational conformity, said Vicki Yeung, associate professor at the Department of Applied Psychology at Lingnan University in Hong Kong.

"When people lack knowledge, and are in an uncertain situation, they tend to follow the group's behavior and blindly conform, but once they obtain more information, and digest and process the situation, the panic gradually fades away," she said.

"During this Covid-19 pandemic, people generally feel jittery and anxious because they feel their sense of control has disappeared."

Unlike other recent global crises such as the September 11 attacks, the coronavirus is not a one-time sharp shock to the system. It is more akin to a rolling source of anxiety that could retreat and resurface repeatedly, consumer behavior experts said.

It may be we'll have to shut down things again in October or August. And this could go on for yearsCharley Ballard, an economist

This was the pattern with the Black Death plague that hit Europe in 1347 and returned episodically over many years, ultimately killing millions of people.

"It may be we'll have to shut down things again in October or August. And this could go on for years," said Charley Ballard, an economist with Michigan State University in the US. "The more that happens, the more damage it does to buoyant consumer psychology."

Furthermore, relative to the 2008 financial crisis and even the Great Depression, when much of the damage was concentrated at least initially in the financial sector, this crisis has seen virtually the entire economy grind to a halt at the same time, devastating employment and consumption.

Last week, a record 3.3 million Americans applied for unemployment benefits within one week. Restaurants, hotels, barbershops, gyms and retail outlets shut down in a nationwide bid to stem the pandemic. The previous record of 695,000 jobless claims was set in 1982.

On Tuesday, Goldman Sachs predicted the US jobless rate will hit 15% in the second quarter of this year as a result of the coronavirus economic freeze. It could rise further beyond that to near the historical peak of 24.9% seen in 1933 during the Great Depression.

Economists at the St. Louis district of the US Federal Reserve projected unemployment could cost as many as 47 million jobs in the US this year, sending the unemployment rate past 32% before making a sharp recovery.

Workers wait for job opportunities at Los Angeles and Long Beach ports amid the coronavirus outbreak.

China's unemployment rate jumped to 6.2% for January and February from 5.2% in December and 5.3% a year earlier. It was the highest level since records began in 2016. It did not include China's estimated 291 million migrant workers.

Consumer spending accounts for more than 60% of the Chinese economy and drives 70% of the US economy.

But with the pandemic causing many people to go into hibernation-mode, and likely to lead to cycles of job cuts, economists have predicted a consumer-led global recession by the second quarter of this year.

Just how long it will take for consumer behavior to return to normal depends on each person's psychological resilience, including how quickly they can adapt to change, how optimistic they are and whether they can adopt strategies to regain a sense of control, Yeung said.

Ballard, from Michigan State University, estimated it could take upwards of two years for American consumers to feel secure enough in their jobs and gain enough confidence to fully open their wallets.

A longer and more episodic duration for the disease could push that higher, he added.

The coronavirus has fundamentally changed consumer behavior, and it may never return to normal.

Further complicating the consumer picture, he said, is that many supply chains are at risk of breaking. And consumers will be wary of spending for a while in many traditional areas, including crowded sporting events and concerts, restaurants and flights.

Some experts have even suggested that consumer behavior may be permanently changed as a result of the pandemic.

"It seems very unlikely that people will get back to life as it was before, once the coronavirus is over," said Andreas Kappes, a lecturer in psychology at City University of London.

"People's behavior is extremely orthodox, often referred to as the status quo bias and captured in expressions like 'past behavior best predicts future behavior.' Now, the crisis forces us to change our behavior, radically, and we might discover that new way suits us better."

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