Due to the Covid-19 pandemic, the world has been facing almost a collapse or meltdown in consumer spending, which is the lifeline of today’s world economy
In our everyday lives, we purchase various durable goods, non-durable goods, and services – the elements used to measure the volume of consumer spending in an economy. From an economic point of view, consumer spending is the total money spent on final goods and services by individuals and households for personal use (apparel, fashion and ornament), consumption (foods), and recreation (tours, travels, entertainment and ceremonies). All of these expenditures can be regarded as complementary to personal savings, investment, and production in an economy.
Consumer spending is the key driving force of the economic cycle. It creates demand in the economy and breeds multiple economic activities. It also encourages entrepreneurship and innovation. In this way, economic productivity, mobilisation of funds, cash flow, and employment generation gain a huge pace. As a result, huge amounts of public spending on infrastructural development and government subsidies in various growing economic activities become inevitable.
Due to the Covid-19 pandemic, however, the world has been facing almost a collapse or meltdown in consumer spending, which is the lifeline of today's world economy. In the 21st century, people have become highly consumerist and fulfil various demands by spending huge amounts of money. But due to this pandemic, people are remaining trapped in their homes. Now they are only thinking about fulfilling their basic needs, such as food and utilities.
For example, the travel and tourism industry accounts for 10.4 percent of global GDP, but due to the coronavirus pandemic, more than 50 million jobs are at risk in the industry, according to the World Travel and Tourism Council. Of these, 30 million jobs belong to employees in Asia. And recovery could take a long time.
The US economy, which is almost one-fourth the global economy in size, is largely dependable on consumer spending. But due to the Covid-19 pandemic, almost 35 million people have lost their jobs and most are now under lockdown. They are spending far less than they were a few weeks ago.
The thriving city of New York is now in a sleeping mode and looks deserted. According to the US Census Bureau data, retail and food sales in the US fell 8.7 percent in March from February to their lowest levels in 2.5 years. It is the biggest one-month drop ever recorded in the United States.
This collapse in the world economy is significantly historic and various research works are now giving shape to this historic economic collapse. A new working paper from the US National Bureau of Economic Research is the first to use recent data on household transactions – like going out to eat – to investigate how the Covid-19 pandemic has curtailed purchases. The paper shows a sharp drop in consumer spending, as the country shut down in March. We also find the same scenario all over the world, especially in the severely affected countries like, Italy, Spain, Britain, and Iran.
In today's fast-moving world, people spend a substantial portion of their incomes on entertainment, tour, expensive food, parties, sports and sports clubs, fashion, and many other unnecessary expenses. As a result, hospitality, aviation, the film industry, amusement parks, fashion houses, and many other entertainment activities have completely disappeared.
Bangladesh is not different from the other countries. Our economy and GDP growth are largely dependent on public spending. Though remittance is the lifeline of our economy, most of that goes to consumer spending as well. People spend more than half of their annual spending budget during the two annual Eid festivals and the Pohela Boishakh. But everything has been hampered severely by the countrywide shutdown.
According to the Bangladesh Bureau of Statistics, consumer spending in Bangladesh increased to Tk1,929,384 crore in 2019 from Tk1,179,923 crore in 2015, and from Tk1,709,929 crore in 2018. With a gradually growing middle-class, Bangladesh is now a lower middle-income nation and is hopefully going to become a middle-income nation withing the next couple of years. Therefore, we may forecast a sharp and steady rise in consumer spending in Bangladesh during the coming years. And the share of consumer spending in GDP shall also be increasing at the same pace.
What might be the positive outcome of this shutdown? Due to the lack of unnecessary expenditures, fixed-income earners can increase their savings. By not consuming processed foods, people are not becoming ill and their medical expenses are being reduced. At the same time, people are not visiting doctors due to mild illnesses. Carbon emissions have reduced substantially and as a result, the number of deaths and outbreak of diseases due to climate change has also been reduced significantly. In the developed world, trillions of dollars are spent on pornography, gambling, drugs, unnecessary amusement, crime, and various other kinds of vulgarism. But due to this pandemic, all of these activities have been halted.
If this situation continues for long, at some point, people will become bound to get out of their home for earning their basic livelihoods and keeping the economy alive. But the situation would be completely different. Every economic activity will be restricted to maintaining social distance. People will only try to fulfil their basic needs. There will be no extravaganza of unnecessary expenses, unlimited tours, unlimited expenses in entertainment, fashion, and many other activities like that. Social distancing might create a mental distance, in the long run, resulting in fear of others, mutual mistrust, doubtfulness, disbelief, etc.
In this way, all sorts of human activities might change their stereotypical characteristics even in the long run. People, the economy, society, businesses, and professional activities will get a new look. And we are optimistic that it might bring a very positive change all over the world in the long run. Are we ready to experience this different look that this world has already begun taking?
The author is a freelancing contributor.