Article

What will the ‘new normal’ look like?

As restrictions on movement are eased and governments attempt to manage Covid-19 as an endemic illness, what can we expect from the ‘new normal’?

| 6 min read

There is plenty of discussion of a “new normal” which will arrive when governments decide to end all virus-driven additional restrictions on economic and social activity. We are witnessing a gradual relaxation of controls in many countries. Governments are moving hesitantly towards treating the virus as endemic, something to live with, no longer a pandemic.

It is as if the world has been fighting a global war which will generate social change, with demands for some popular reward for the privations of the conflict. The banning of much travel and many social contacts has accelerated the growth of digital and remote business, entertainment and social interactions. It has forced many businesses to invest in the equipment to allow widespread home working, has inspired many individuals to learn how to do more things on their smartphones and laptops, has encouraged families to get in touch with remote calls and digital pictures, has boosted the streaming services for music and film and made more people into social-media fans.

Big changes in urban centres

The current pattern of behaviour as we edge out of lockdown is for people to want to keep some of the homeworking they have established. In tight labour markets on both sides of the Atlantic employers have decided they need to allow a new model with hybrid working more common and with more done by employees from a home base. The current vogue is for Tuesday, Wednesday and Thursday being days where people are more likely to be in the office, and Monday and Fridays more likely to be concentrating on tasks that can be done from home without collaboration in a team meeting.

If this becomes an established pattern it has adverse consequences for large office centres in cities. The businesses that cluster around the office blocs to provide food and drink, back-up services and lunchtime shopping will struggle with much reduced demand. Some of this will be displaced purchasing, benefitting local centres near the homes of the office workers who will gain.

If people save on travel-to-work costs they may want to spend more on leisure time activities which may involve some travel.

It is likely people will be more attracted into the large cities to shop, to go to live shows and museums, so those catering establishments close to visitor attractions are likely to see their full business return. Indeed, if people save on travel-to-work costs they may want to spend more on leisure time activities which may involve some travel. They have their lockdown savings, though they also need to face their rising fuel bills which takes some of the discretionary spend off the top.

Chart 1: New York County (Manhattan) Google mobility data for 2021 (% change on pre-pandemic baseline)

Commuter travel has been badly hit by lockdown, though much of this is organised by national and local governments which have provided more subsidies to keep little-used services going. If we move from five-days-a-week to three-days-a-week office working, there needs to be flexible season ticketing and timetables for the lower number of journeys made.

International travel has taken one of the biggest hits, as lockdown has often come with specific and tough restrictions on travel across borders. These controls will gradually end, and there is likely to be an upsurge in foreign holidays as people want to spend their savings from pandemic lockdown and to make up for some of the lost travelling they wished to do. Business travel may not return to pre-pandemic levels. Businesses will have liked the substantial savings and have put in place Zoom and Teams links to replace some of the physical contact. They are also under new net zero pressures to cut their carbon footprints.

Airline headwinds will continue

This is bad news for the aviation industry, as business travellers provided a high proportion of the front end of the aircraft custom where prices are high and margins better than in the discounted back of the plane. Sector share prices have been hit a lot by the restrictions and will need to reprice to reflect the new balance of demand.

Shop retailing was in decline before the pandemic as many more people saw the advantages of greater choice, price competitiveness and convenience of online shopping. There was a forced acceleration in the shift during lockdowns, where online purchase was in some cases the only legal way to buy.

As shops reopen and as people relax about the threat of catching the virus there is a boost to traditional shops, high streets and malls. The most successful will be the ones that have a good mix of café and restaurant space as many shoppers now wish to combine buying things with a drink or meal out. Proximity to leisure activities will also help. There will need to be further shop closures and conversions in a range of locations as the amount of floor space is adjusted to the new balance between online and in store. Anyone investing in shop property needs to be careful with selection and needs to understand the dynamics that drive footfall in the area concerned.

Chart 2: Share of online sales in retail and changing consumer sentiment to online shopping during the pandemic

The Covid-19 restrictions have reinforced a trend that was emerging before the virus. Countries are looking to onshore more activity, and to retreat from the pinnacles of globalisation with complex supply chains dependent on sea and air transport.

Presidents Trump and Biden have both produced made-in-America campaigns. More countries have given greater weight to self-reliance, as they faced stress with inadequate supplies of protective clothing, medical equipment, drugs and vaccines during the pandemic. The world has had a shock about just how quickly global trade and travel spreads a dangerous disease. It will continue to boost remote technology and more made at home as the effects linger.

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.

What will the ‘new normal’ look like?

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