As our Head of Investment Strategy, John Wyn-Evans, wrote in a recent column, the first 80 minutes of the film Jaws are the scariest because, until then, the infamous shark is no more than a shadow in the water and a fin. This is much like the first phase of the coronavirus pandemic. At least now, we have had a good look at what we’re dealing with.
Consumer confidence is growing
That goes some way to explaining why investors are feeling more sanguine. Though we still face rising global infection rates of Covid-19, fear of the virus is slowly subsiding. We know that the pathology of the virus is less frightening than first estimated, we have a better understanding of virus control, and a better toolkit to achieve it. In addition, the healthcare capacity to treat any upsurge is now in place, with the promise of a vaccine coming sooner rather than later.
Interestingly, popular tolerance of restriction measures is wearing thin and democratic governments risk losing their authority if they demand things they cannot enforce. It is therefore unlikely that blanket national lockdowns will be re-imposed, paving the way for a gradual return to the resumption of the social economy. In all of this, the consumer is the key.
Inclination to spend will return
The massive global response built around furlough schemes has, in effect, largely underwritten individuals’ salaries, but this, evidently, has not been enough to maintain spending through the pandemic. Ultimately, it is consumers’ state of mind which will see the return of their inclination to spend.
There is evidence from China to suggest that consumer demand there is recovering, although the country’s fairly recent transition to a more westernised, consumer-driven economy means that direct comparison is difficult.
At the end of the day, Covid-19 is temporary and mortal fear is not the natural state of mankind. The odds rise with each day that consumers will put the Covid-19 bruising behind them. There is real potential for momentum to build quickly once the coast is perceived to be clear.
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