The global economy is waking from its COVID slumber, but what will drive recovery? we suggest three post-pandemic drivers of growth
BY: Rhys Madoc, CEO, UHY International
According to the Organisation for Economic Cooperation and Development (OECD), many national economies will recover to pre-pandemic levels in 2022. Globally, gross domestic product (GDP) will grow 5.8% this year, the OECD forecasts. This is more promising than its previous forecast in December, which predicted GDP growth of 4.2%.
While this is good news for the wider economy, businesses will want to know how it translates to their own sector. The global economic outlook may be positive, but the recovery is likely to be uneven. Here, we consider three factors likely to drive the post-pandemic rebound, and what they might mean for different parts of the economy.
ONE: Consumer spending
This is the big one. In many countries consumers are sitting on large reserves of cash they were unable to spend during lockdown. An unprecedented 6-20% spike in savings rates across China, the US and Western Europe in 2020 suggests that consumers have the disposable income to drive post-pandemic recovery. That is already boosting economies in the Middle East, where oil production is beginning to recover. Many African economies are also starting to rebound.
The OECD agrees about the potential for a “rebound of consumption, notably of services.” Leisure, hospitality and retail are clearly the big winners here, but the ripples will be felt through manufacturing, food production, logistics and more. On the downside, the big loser could be international travel and tourism. There is a chance that the consumer boom will have faded before borders are fully unlocked.
So how sustainable is a consumer-led recovery in the longer term? Quite simply, we do not know. Consumers around the world are spending money on restaurant meals and cinema tickets as economies open up, to “make up for lost time.” How long this spending spree will last depends on how much the pandemic has altered behaviour.
Nervous consumers may want to keep larger savings pots for peace of mind after the pandemic experience. If more people switch to permanent home working, retail and hospitality that serves the daily ebb and flow of commuters may suffer.
TWO: tech-led productivity surge
One potential driver of growth is the fact that, post-pandemic, we are all a bit more efficient at doing what we do. That is not because of any Covid-induced superpower. It is simply because companies have been forced to adopt new technology and processes during the pandemic that would otherwise have taken years to become fully accepted.
We have also noticed across the UHY network that Covid-19 has pushed some client businesses to adopt process innovations that were technologically possible, but largely under-utilised before the crisis.
The story is largely about technology, though pandemic home working may also have hastened the decline of inefficient and rigid top-down company hierarchies. The uptake of cloud computing, automation and robotics, among others, has been marked – one study suggested companies digitised many activities 20 to 25 times faster than they had previously even thought possible.
Economists have calculated that these innovations could result in 1% labour productivity growth to 2024, leading for example to per capita GDP increases of around USD 1,500 in Spain and USD 3,500 in the US. They say this would be a “stunning outcome” but accept that it depends on these innovations filtering down through entire economies, and not being limited to large ‘superstar’ companies. But regardless of the exact result, many sectors such as ICT, healthcare, construction and retail, seem likely to record the biggest gains.
THREE: The green economy
Governments around the world have expressed the desire to “build back better” after the pandemic. At the same time, populations have lived through a global crisis, with citizens of wealthier nations experiencing empty supermarket shelves and limitations to freedom for perhaps the first time. Looking ahead, environmentalists hope Covid has brought home the realities of crisis management in a very real way – and consequently a fresh perspective on uncontained climate change.
Whether that will prove true is unknown, but governments have responded to the pandemic with a range of fiscal stimuli for green infrastructure projects. In the United States, this faces a long battle to get through Congress, but President Biden’s recent USD 2 trillion stimulus package for the US economy includes significant investment in public transport, clean power and energy-efficient buildings. Around the world, governments from Chile to Canada say they are putting climate action at the heart of post-pandemic ‘build back better’ strategies.
There is a caveat: environmentalists argue that many of these announcements mask more damaging actions, like financial support for fossil fuel companies and airlines through the pandemic. But regardless of the environmental outcome, post-pandemic growth seems likely to be driven to some extent by either direct government investment in sustainable infrastructure or preferential treatment (often through tax incentives) for green businesses. Green manufacturers and construction companies stand to gain most here, though the sustainable energy and transport sectors will also benefit significantly.
Good advice is crucial In all these sectors, good advice will be crucial for businesses looking to thrive in a changed, post-pandemic world. As part of a global network with vast experience in a wide range of sectors, we can help companies and entrepreneurs find new investment, tap into government support and benefit from tax incentives. Operating in every major economy, our UHY colleagues around the world provide the on-the-ground expertise businesses need when moving into new international markets.
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