How do we monitor the spread of the Covid-19 virus and the impact on markets?
Read the latest on the economic and investment implications of the Covid-19 outbreak in this regularly updated bulletin from Karen Ward, Chief Market Strategist for EMEA, and Ambrose Crofton, Global Market Strategist.
Long-term impact of Covid-19
Even a year into the pandemic, it is still very difficult to make confident predictions about the lasting impact of Covid-19 on the global economy. That said, we can now make assessments that extend beyond the very short term. Where has the crisis accelerated trends that were already underway, and where have historical trends been pushed in a new direction? We assess the impact across three key areas.
Covid-19 has forced people to buy a broader range of products/services online. We expect some of this shift to be permanent, with ripple effects across sectors (for example, higher e-commerce penetration increasing demand for industrial property).
We disagree with those proclaiming ‘the death of the office’, but more flexible working arrangements will likely result in higher demand for high-speed broadband and may also impact housing choices over the medium term. Increased use of video meetings could lead to sustainably lower levels of business travel.
Savings rates have spiked as governments have protected incomes while spending options have been limited. We expect pent-up demand to be ploughed back into the economy this year as consumers make up for lost time, although many households may still decide to maintain slightly higher levels of precautionary savings.
Strong get stronger
The pandemic created huge gaps between winners and losers across sectors. Vaccine rollout should provide support for last year’s laggards, but it will not cure every ailment for every company. For many companies with healthy balance sheets and strong business models, the pandemic has created acute – but temporary – disruption. For others, it has meant business model destruction.
Corporate budgets are likely to allocate more resources towards technology, both to enhance business resiliency and to lower the cost of service. Cloud-based platforms are one industry that looks well placed to maintain a higher market share.
Companies have long been developing machines to replace human labour, and the pandemic has provided a further push. We see wide-ranging impacts across corporate margins, capex intentions and hiring, among other areas.
There is little appetite for a return to widespread austerity, but government debt is ballooning. We expect future tax policy changes to put more pressure on the corporate sector than the individual.
Critical industry independence
Covid-19 identified clear faultlines in the global supply chain. In future, governments are likely to be more focused on ensuring that key industries (for example, healthcare) can operate without relying on overseas imports.
Heightened company scrutiny
Given the huge government support the private sector has received, corporate behaviour is increasingly coming under the spotlight. This includes how companies have treated workforces, the use of government funds during the pandemic and plans for future spending.
SECTOR EFFECTS OF COVID-19
Pictures source: J.P. Morgan Asset Management