Recovery Through Optimism


How consumer and business morale can help build economic recovery

Most economies go through periodic downturns, and the road to recovery is partly built upon improving consumer and business confidence and optimism. Asia has benefitted from quick recoveries from crises in the past – e.g. the 1997–98 Asian Financial Crisis and even the Global Financial Crisis – characterised by ‘V-shaped’ rather than ‘U-shaped’ recoveries for some markets.

Today we are waiting to see how economies will recover from the lockdown period for COVID-19 – a highly unusual type of recession which theoretically should see a quick rebound. The issue, though, is that the severity of the recession and the unprecedented changes to consumer behavior prompted by the lockdown will have ‘changed the game’. This could mean a longer road to recovery, but also a very different consumer and business environment.

The ‘Post COVID-19 World’ survey conducted by BDRC in April/May showed that 63% of households have had or expect to see a reduction in their income, 15% have seen someone in their household lose a job, and 94% will reduce their household budgets at least for the rest of 2020, partly out of necessity and partly as an insurance policy for more difficult times ahead.

Our corresponding business survey also shows that, despite generous government support measures for businesses, a net 25% of companies claim they will be worse off at the end of 2020. 77% of businesses report a reduction in revenue and business activity, and 55% report reducing headcount, cutting salaries/benefits, or switching staff to part-time hours. 18% of companies have retrenched staff, and 32% expect to do so in the next six months.

The path to recovery and how to achieve this

While businesses have been battered, there will be opportunities in the recovery. Consumers will still spend, but in new areas and via new channels. Clearly e-commerce will benefit, as 30% of consumers state they will continue to do more of their shopping online, and there will be higher demand for consumer electronics, household goods, and home entertainment products, as people will work and entertain themselves more at home. In response to changes in working arrangements, 80% of businesses state they will invest in new IT (e.g. cloud services, AI, remote working technology, etc.), and there will be higher demand in areas such as healthcare, hygiene products, and safety certification.

But a boost to both consumer and business morale will be needed to achieve a return to some form of normality, which is only half expected to happen in 2020. Within our surveys, we assessed the morale of both consumers and businesses and the factors that will help to determine positivity and better business outcomes by the end of 2020.

Among consumers, clearly those who were more negatively impacted by the lockdown – e.g. through job losses or reduced income – had lower morale, but this was actually more prevalent among those who anticipated these losses in the future. This indicates that uncertainty about the future can be worse than the certainty of what has already happened.

What helped to build morale was the activities that consumers turned to during lockdown. Those who kept themselves busy with new activities reported better morale than those who did not, especially when they partook in exercise, more socializing (e.g. through Skype calls), and in particular self-improvement, such as training and upskilling, learning to cook/finding new recipes, and doing creative activities such as art, music, or writing.

Among businesses, the outlook varies a lot by industry sector. Manufacturers are the least optimistic, although some industrial sectors are more positive, possibly because of government investment in Singapore’s infrastructure. Consumer services (excluding retail and hospitality) are the most positive as opportunities are opening up for e-commerce and technology, among others. Importers are also more optimistic than exporters, the latter being more inhibited in selling overseas than those who buy overseas, as selling often requires more face-to-face contact with prospective clients than buying remotely does.

But like consumers, businesses need to take action to improve their own outlook. We see that those businesses that moved quickly to remodel themselves, and those that have definitive plans for restructuring and investing in IT specifically, have a more positive outlook. Notably, companies that have managed to switch staff to part-time working arrangements, those who plan to implement more flexible work arrangements for their staff, and those who intend to outsource more to reduce headcount are more optimistic about their business prospects. They also intend to focus more on core markets than chasing new business.

In contrast, companies that have needed to retrench, and those with no plans to take on new technology, are the least positive. Those seeking concessions from their landlords are less positive, indicating that being stuck with expensive leases is dampening business morale. In Singapore there is a lot of flexibility for companies to reduce their staff costs, but the financial commitment of leases can be a burden on businesses with relatively high commercial real estate costs.

The Economist wrote about the ‘90% economy’ – for most businesses, achieving 90% of their revenue compared to 2019 would be quite an achievement given the circumstances, even with tighter margins. But many businesses will have significantly less revenue than this, although even companies dropping to 70% of their former revenue can adapt to this ‘new normal’, and it is better to think of the 70% of revenue that has been retained than the 30% that has been lost. What is important is that businesses have the flexibility to adapt to this ‘new normal’ by, if possible, retaining their best staff through more flexible work arrangements.

Like consumers, the businesses that have been more active during the crisis – e.g. by undertaking a range of initiatives to remodel themselves – have a better outlook. This can also mean that they have been able to communicate their plans and initiatives to all levels of management within the business. Managers ‘left in the dark’ about their company’s plans have a more negative outlook for the future. Similar to consumers, uncertainty about the future can be worse than what has already occurred.

One of the most significant findings from the BDRC survey is that, with both consumers and businesses, one of the highest drivers of a more positive outlook and morale is the level of confidence they have in the government’s handling of the crisis. Those describing themselves as ‘completely confident’ in the government were 50–90% more likely to have a more positive mood or outlook. Hence, beyond the financial assistance provided by the government during the crisis, specific support to help consumers retrain and upskill will add to consumer sentiment, as well as support for businesses to invest in new technology to help them adapt to a new market characterised by more e-commerce, remote working, and disruption to international markets.

By Piers Lee LinkedIn, Deputy Editor of Asia Research