- Deutsche Bank says we will not see a V-shaped recovery in the economy or the stock market.
- The bank has highlighted 21 behavioral changes that will dampen growth in the coming months.
- Even if coronavirus cases are slowing down, we can’t just kick-start the economy.
Deutsche Bank shattered all hope of a rapid rebound following coronavirus blockages. Analysts were hoping the stock market would recover to a short, clean V-shaped pattern after plunging 34% in a matter of weeks.
Instead, it is clear that this is a long-term crisis. The pandemic and its economic bottlenecks will change everything. Deutsche Bank has already predicted a deep recession. Now they are out 21 “behavior changes” which will cause slow growth for months and months to come.
Behavioral changes are the reason we won’t get a V-shaped recovery, and there isn’t much fiscal policy to do about it.
Households to Crush Consumer Activity
1. Families will start saving more. Like the Great Depression, families will go into survival mode, saving any spare money and avoiding unnecessary expenses.
2. Spacing of seats in public places. This virus will change our public spaces. Restaurants, cinemas, planes and sporting events will increase the space between seats, resulting in lower revenues.
3. People don’t go on vacation. Fewer people will travel until a vaccine or treatment is available.
4. Older generations stay at home. The closings may loosen, but vulnerable people will likely stay at home, spending less.
5. Supermarkets limit the number. In the short and medium term, stores will continue to impose restrictions, driving down revenues.
6. People stop going to the gym. For fear of picking up germs and new established home routines.
seven. People avoid public transportation.
8. Health insurance premiums will increase. Increase average monthly family expenses and reduce expenses.
Business activity will limit stock market gains
It is not only households that experience pain. American companies will have a hard time restarting in the coming months. JP Morgan CEO Jamie Dimon echoes Deutsche Bank sentiment, saying the slowdown a lot in common with the 2008 crash.
9. Fewer business trips. This results in a loss of revenue for airlines, hotels, leisure and hotels.
ten. Staggered work schedules. Possible decrease in productivity and communication.
11. More permanent work from home configurations. Short-term disruption of productivity.
12. Fewer share buybacks. The companies buying their own stocks were the biggest buyers on the market. This buying pressure will go away.
13. Health insurance costs rise. Companies will pay more to cover their employees.
14. Pressure on benefits. Companies forced to adopt paid sick leave, health benefits and benefits for contractors / concert workers.
Government Regulations Will Slow Stock Market Growth
And, of course, the heavy hand of government will slow productivity with overzealous regulation. Deutsche Bank identifies some notable changes in the pipeline.
15. Travel restrictions. Some restrictions will remain in place, which will result in longer journey times.
16. Forced cash reserves. Just as banks were forced to increase liquidity ratios after the 2008 crisis, businesses and even households may have to build up a cash cushion, forcing them to defer spending or investing.
17. Increase in health care regulations and spending.
18. Increased regulation for retirement homes.
19. Less globalization. Nations are more likely to store their own reserves and become less dependent on others. This could dampen world trade.
20. More planning and preparation. A welcome change, but one that can divert attention and resources from other sectors.
21. Increase in the supply of government bonds. A debt crisis was a concern before the coronavirus pandemic. With unprecedented levels of stimulation, it is now a much greater reality.
These behavioral changes combine to slow the economy and reduce spending habits. There is no doubt that the economy and the stock market will recover from this crisis. But it won’t be fast.
This article was edited by Samburaj Das.