My view on what's going on in the financial markets and the global economy, and a few other things that might interest me from time to time.

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  • tim@emorningcoffee.com

Once the Dust Settles

Updated: Jul 19, 2020

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I recently asked several friends about their thoughts regarding the knock-on economic effects of the current COVID-19 pandemic. I heard a lot of very good ideas which I have lumped into one of three broad categories:


1. The short-term effects: hoarding hand sanitizers, face masks, toilet paper and canned goods; restaurants and gyms closing; home delivery services expanding; people withdrawing cash from ATMs; etc.

2. The long-term effects that will reshape governments and the overall public sector: improving preparedness for future pandemics; manufacturing capacity developing an “on-shore bias” (to protect supply chains); stronger nationalistic feelings; etc.

3. The long-term effects that will affect everyday people after the pandemic has passed.


Much can be said about all three themes. The first encompasses highly visible, short-term effects from the COVID-19 crisis that I suspect will be temporary. The second is longer-term consequences that I expect to dominate politics and economies for years to come. Once the dust settles on COVID-19, governments around the world will have to develop protocols that will enable their public sectors to cope with the unfortunate reality that pandemics may occur with greater regularity. The third and final theme covers the lasting effects of COVID-19 on our behaviour and the behaviour of future generations. In other words, how will the severe economic shock caused by COVID-19 change our everyday work and personal lives once the pandemic passes? It is this question on which I will focus on in this post. Here are my thoughts:


1. Working Habits / Working Remotely: Working from home is nothing new, but companies under severe financial stress because of this crisis might now realise that they can reduce their operating expenses by allowing some of their employees to work part-time or full-time from home. In the U.S., approximately 5 million employees (3.6%) worked part-time or full-time at home, based on a 2018 study by Global Workplace Analytics, a trend which has been accelerating since the mid-2000’s. The survey goes on to say that even more people could work from home at least part-time (meaning there is capacity), and 80% of people would like to work from home at least some of the time (meaning there is desire / demand). This is a worldwide trend – you can see statistics for the EU countries in the graphic below from Merchant Savvy (underlying data from Eurostat), as well as the momentum in favour of more flexible working.


By having more employees work part-time or full-time from home, companies will reduce their cost base because they will require fewer permanent desks and less office space. Employees working part-time or full-time from home also benefit from real cost savings themselves, and these are outlined in Global Workplace Analytics. Aside from the tangible benefits, there are soft arguments for and against working at home, but the momentum globally – well before COVID-19 surfaced – was in favour of more workers working at least part-time from home. This is easy to imagine. Companies could offer shared desks in their (smaller) physical offices, asking employees to work one or two days per week from home and the other three or four days in the office. Such an approach does not eliminate the advantages of employee interaction or jeopardise the development of “corporate culture”, and it would save companies a lot of money assuming productivity doesn’t decline (and surveys seem to suggest that it does not).


COVID-19 is now forcing many companies around the world into this very arrangement, whether they like it or not. Many of these companies, including both those that have embraced this trend to date but also those that have been less open-minded in this respect, will now be forced to give it a go. I suspect that this will open the eyes of the doubters and – coming out the other side of this pandemic – accelerate the trend towards a growing number of employees working part-time or full-time at home.


2. Education & Training: This area comprises young children, teenagers, university students and adults. It is a vast amount of ground to cover, too much for this blog post. I will try to touch on a few areas though.


With respect to primary and secondary education, COVID-19 has interrupted the school calendar in many countries around the world. Many primary and high schools are closing for an indeterminate number of weeks, or even through the end of the school year. For students meant to be facing year-end exams, these are either being rescheduled or – in some cases like in the U.K. – being cancelled altogether, an unprecedented step. As highly disruptive and unusual as this is, I do not see any long-lasting changes to the way that primary and secondary education will work once things normalise, because the social interaction, in-classroom teaching, and the large assortment of extra-curricular activities are an integral part of a young person’s education.


As far as universities, I similarly see very little changes in terms of the way they operate at the moment, once COVID-19 passes. As universities are shutting down around the word, class lectures will probably move on-line, although my understanding is that many universities already offer lectures on-line for their students. Nonetheless, the university experience generally is wholistic, including very important social aspects. Perhaps there is some improvement in university operating costs by relying more extensively on on-line lectures, but I personally don’t expect this will really stick to any large extent post-crisis.


Where I suspect we will see more changes is in the area of on-going employee training and continuing education. The first reason in simple – people that suddenly find themselves underemployed or unemployed could turn to on-line course offerings to keep their minds working and “modernise” their skills, or even use this hiatus as an inflection point to change careers. At one time, on-line degrees or course certificates were an area of dubious distinction with questionable credentials, but this is no longer the case. Prestigious universities like Oxford and Harvard now offer classes on-line, and educational companies like Coursera offer access to thousands of courses from many prestigious universities and companies, including the likes of Columbia, University of Pennsylvania, Duke, Princeton, EDHEC, Google, PWC, and many others. I suspect companies like Coursera will flourish during this downturn, and at least a portion of the uptick in this type of learning will stick.


The second reason is that companies might focus more intensely on the scope of and methods for offering on-going training to their employees, whether such training is for retention purposes, to ensure that their employees are up to date and current as far as skills, or to meet regulatory requirements. Companies have traditionally relied on a combination of third-party vendors that offer specialist on-site training courses and rather uninspiring on-line training, normally in the form of a module of slides or videos. However, I suspect that third-party in-house training will be largely out of bounds for the foreseeable future until COVID-19 is brought under control. This, in turn, will likely cause companies – especially regulated entities like banks and asset managers – to pivot towards companies focused on requisite high-quality video content that is available exclusively on-line. Offering employee training in this format (as opposed to third-party in-person training) is more flexible for both employers and employees. It is also considerably cheaper and much less of a logistical nightmare, delivering to employees a wide variety of content that is engaging, informative and interesting. Once employers get a taste of the scope and quality of courses that they can offer their employees, I suspect they will rely on this offering format more frequently.


3. Exercise and Health: Fitness centres like Soulcycle, F45, Heartcore, Barry’s Bootcamp, many yoga and pilates studios, and most gyms, are closing around the world, eliminating a key “release-valve” for stress and one of the important factors in general well-being. Many health-conscience people that have relied on these training centres will need to find new ways of maintaining their physical well-being during this period of home confinement. As countries clamp down to enforce self-isolation, it is perhaps fortunate that most governments seem to be suggesting that they will allow people to go out for exercise as one of the handful of exceptions. I also suspect that on-line exercise courses will flourish, including subscription-based offerings like FITT, GymCube, Peloton and Gymondo. Once the pandemic passes, cynics might think that people will cancel their on-line training and flock back to fitness centres and gyms as they reopen. This is likely to happen to a great extent, but not entirely because I believe some people will become “hooked” on outdoors exercise (walking, hiking, running, cycling), and / or on the use of on-line subscription-based training courses that offer more variety and flexibility for busy schedules. For those studios forced to close now, the best thing they could do is move their classes on-line for the time being, but they should be prepared to accept that some customers - perhaps not a large number - might choose to remain on-line once the crisis passes. I think there will be lasting changes in exercise and well-being, and that these changes will be positive.


4. Travel: Most of the world is currently grounded, so the question is “how will this hiatus change consumers’ perspectives towards travel once they are free to travel again?” Most people with whom I have spoken believe that, from the perspective of personal travel, very little will change. There has already been a movement afoot towards raising personal awareness of the connection between travel and the negative affect of such travel on the environment. I think this shifting attitude toward greater environmental awareness will be more influential on people’s future behaviour towards personal travel than the temporary hiatus due to COVID-19. (I expect personal travel to explode initially though once travel restrictions are lifted, as pent-up demand will need to be satisfied.) I feel differently about business travel. Businesses will come out of this crisis with severe pressure on their operating costs, and a realisation that some percentage of face-to-face business meetings can in fact be conducted just as successfully through video conferencing. I suspect that COVID-19 will cause a gradual decline in business travel, and this of course will cascade through to the airline and hotel industries, which are suffering more than any other sector now.


5. On-Line Purchases / Retailers, and Delivery Services: It goes almost without saying that home delivery, which has been on the upswing for many years now, will accelerate further, and I don’t see this reversing to the average growth rate when the crisis ends. I suspect the acceleration in growth might be most notable in the food / grocery business, which has been slower to catch on than home delivery of general consumer goods (from Amazon for example). I suspect the demand surge in home delivery services caused by COVID-19 is putting many home delivery and on-line restaurants and stores under severe stress. Also, as fast food restaurants and coffee shops close their premises to customers dining in but leave their kitchens open, pick-up (“click & pick”) usage will almost certainly skyrocket. There will be unfortunate logjams, but the result will be pressure on food and consumer product companies – and related logistic companies - to develop better websites, more reliable and user-friendly apps, and more innovative and efficient delivery mechanisms like drones. It’s all coming anyhow, and this crisis will just accelerate the trend. After the crisis passes, I believe that there will be significantly more customers globally that will become accustomed to the convenience of home delivery and / or “click & pick” and will never go back to physical stores. This will undoubtedly accelerate the death of the traditional high street, a trend that has in any event been underway for some time.


6. Social Media: More time on one’s hands will translate in many cases to more time spent on social media. Once people are hooked, they will likely continue to use social media platforms even as their lives return to normal. This is only part of the story though, as the current COVID-19 crisis is certainly increasing “fake news”, and this in turn will put even more pressure on regulators to impose restrictions on social media companies. Hopefully, this does not result in a loss of transparency or infringe on freedom of expression, but I can easily see the pendulum swinging in the direction of more regulation.


These are just a few of what might be many personal and consumer behaviours that will be changed forever by this unprecedented crisis. I am sure there are others that I missed, so comments and ideas are welcome.

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