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Mixed news about the virus lockdowns

Any return to normality will be slow and phased. ‘Business as normal’ is unlikely to be seen any time soon.

Any return to normality will be slow and phased. ‘Business as normal’ is unlikely to be seen any time soon.

by
John Redwood

in Features

20.04.2020

Today brings some good news. Germany is cautiously starting to lift restrictions on its economy, with some return to school and the re-opening of more small shops. Other major economies are also beginning to examine how a staggered return to work might be possible, in due course.

In the US, the decision has been shifted to State Governors, with the President keen for people to lobby their Governor for an early relaxation. Meanwhile, France, Japan, Spain and the UK continue with full lockdowns for a bit longer. Markets will like the idea that there is some light at the end of the tunnel of closures.

It is also clear, however, that no country has in mind a ‘big bang’ return to work, with things back to as near normal as possible anytime soon. There is a reluctance to re-open bars, hotels and restaurants, and a continuing worry about international travel and tourism.

Slow reopening

Those businesses that are being considered for re-opening will have to do so with new ways of working. Office-based activities are likely to re-open with a lot more home working as part of the mix. Only those staff who need to be in the office will be encouraged to be there in person. There will be fewer client and customer meetings face-to-face and much more communication by electronic conference and through emails and web-based systems.

Factory and warehouse working will be at a pace and intensity that allows more segregation between employees. There may be more elaborate work clothing provided, with some anti-virus protection items included. The factory and warehouse-based businesses that have enough cash and credit will need to spend more on automated systems to replace labour that is too concentrated together.

Cutting costs

Businesses will re-examine their cost base. Retail chains are likely to accelerate their reduction in physical shops and will expect lower rents and rent holidays where they keep their stores. Service sector businesses from employment agencies through travel agencies to insurance brokers with High Street outlets may well also reduce their physical presence and do more online.

Some office-based businesses may decide that their future will be based around a mixture of office-based activities and home working, allowing fewer permanent desks in a head office. They may also want to operate out of split sites, with a cheaper location site as well as a central site in a capital city or some other expensive HQ location. This also reduces infection risk by splitting the base of staff geographically.

Online everything will be the big winners. Digital conferencing has made huge market share gains during the crisis. Whilst many people have signed up for free versions so far, the online businesses will find ways of holding many of these gains whilst adding revenue. Business users will move to paying for service where they do not already, and domestic users will provide a good base for higher advertising rates in due course.

Successful service businesses will be those who innovate and work with the Tech firms to stretch the potential of the remote technology. There is scope both for improved productivity gains as more client and customer contact is travel free through remote links, and for improved service as online offers the chance of keeping people in touch more often with the service provider.

Travel industry pain

It is difficult to judge when – and to what extent – events, travel and tourism will be allowed and popular again, coming as they do at the end of any likely relaxations. In the meantime, sports will experiment with performing to empty stadiums with television coverage.

More plays, performances and other events will morph into virtual versions. Governments are afraid that too early and too liberal a relaxation will lead to a second wave of the pandemic. There will be slightly different experiments around the world into how far relaxation can go without triggering a new peak.

What is clear is that all the time there is no vaccine or cure we must live with the virus. That will induce these big structural changes and changes in working patterns. Portfolios need to reflect that new reality, accentuating the new online business models in the share part of fund.

Oil has fallen away again sharply despite the production cuts, reminding us how damaged the older industrial economy still is. Opec hoped it could hold the line around $30 a barrel, with the biggest-ever production cuts, but demand has declined by more. Storage space is filling up and still the streets of most cities have few cars moving, whilst oil and petrochemical consuming plants are not operating at anything like full capacity.

Nothing on this website should be construed as personal advice based on your circumstances. No news or research item is a personal recommendation to deal.

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