Will there be retaliatory consumption after Covid-19?
Author： swany Li
With the stability of Covid-19 prevention and control in China, economic recovery has gradually become a hot topic in the whole society. At this time, both companies and consumers are looking forward to the advent of ’retaliatory consumption‘. Companies hope to make up for the heavy losses caused by Covid-19. Consumers need to release their suppressed demands for a long time. And the national economy is expected to return to the right track as soon as possible.However, many people hold different views. They have doubts about when and how retaliatory consumption will occur.
So, will there be retaliatory consumption? I want to talk about my views in this article.
Many people who believe that retaliatory consumption will occur are based on the economic performance after the SARS in 2003. In terms of time, the SARS outbreak started in December 2002 and gradually spread in the spring of 2003. It reached its peak in April and May and was gradually controlled in June. During this period, a series of changes have taken place in China's consumer market.
Historical data shows that the year-on-year growth rate of total retail sales of social consumer goods had a cliff fall during the outbreak of SARS. However, after June, the rate began to rise gradually, and returned to a stable situation. And the subsequent growth rate exceeded the level before the outbreak. It is worth mentioning that comparing the year-on-year growth rate of the retail industry and the tourism industry, we can see that the latter has suffered much more than the former. The growth rate of the tourism industry has also rebounded significantly after the SARS. All in all, the SARS has really brought a negative impact on the consumer market, but these effects are more manifested in the short term. From a long-term perspective, with the gradual improvement of the epidemic prevention and control situation, consumer activities will not only return to the right track, the subsequent growth rate will even be higher than before.
History is always repeating itself. Covid-19 has similarities with the SARS, so the various experiences during the SARS can easily be considered as valuable experience. Because of this, many analysts are optimistic that after Covid-19, there will be retaliatory consumption.
However, if the retaliatory consumption is a plant, then its seeds must be in the appropriate soil to take root. Although the current reality is similar to the past, people also face many challenges that were not there in the past. There are three main challenges that stand in the way of retaliatory consumption.
First, the impact of Covid-19 is deeper and wider than SARS.
As far as the SARS was concerned, according to the statistics released by the WHO on August 15, 2003, a total of 8422 confirmed cases worldwide, involved 32 countries and regions, included a total of 5327 cases in mainland China, 1755 cases in Hong Kong and 665 cases in Taiwan. It is not difficult to find that our country was the hardest hit by SARS. In a sense, once the domestic epidemic was eradicated, the global epidemic was basically resolved. In fact, since June 24, 2003, after the SARS epidemic in China, the whole national economy has recovered rapidly, and the trades between China and other countries have not been seriously affected. Looking back at the epidemic we have experienced recently, despite our strong social mobilization and execution capabilities, it took only two months to quickly control the situation. But the severity of the overseas epidemic situation has greatly exceeded everyone's imagination. It shows no signs of slowing down, and it is not clear when the epidemic will end. As a result, the global supply chain and financial system have been severely impacted, and the world economy is facing unprecedented challenges.
For China, these conditions are obviously not good. We have to bear the risk of imported covid-19 from abroad and face the dilemma of long-term weak external demand. The national economy is under great downward pressure. Reflected in the residents, is the decline in future income expectations, as well as the fear of wage cuts and layoffs, which led to a decline in consumer confidence. We have no idea how long people tend to hold on to their money rather than spend it.
Second, the stage of economic development now is different from 2003.
The SARS coincided with China's accession to the WTO. Driven by multiple factors such as accelerating urbanization in China and sharing dividends in the global market, the national economy was in a period of rapid development, with an overall upward trend. Even after the epidemic, China's GDP grew by 9.3% in real terms. The economy was in good shape, so that people's expectations for the future economy remained optimistic. And the consumer market has been able to maintain a good momentum of growth. However, in recent years, GDP growth has been only about 6% compared with the same period last year. The current economic situation is already full of challenges. Coupled with the impact of the epidemic, a strong rebound in the consumer market will not be easy.
Moreover, China's industrial structure has already changed. In 2003, the service sector accounted for just over 42% of GDP. By 2019, the tertiary industry has become half of the national economy, accounting for nearly 54%. The most severe impact of the epidemic this time is on the tertiary industry, which focuses on catering, hotels, tourism and entertainment. This determines that the negative impact of the epidemic on China's economy will be far greater than that in 2003, and it will be more difficult to boost the consumer market.
Third, the situation of residents has also undergone profound changes.
After years of development, the income level and quality of life of Chinese people have greatly improved. In 2019, China's per GDP exceeded US $ 10,000. However, it should be noted that the debt ratio of Chinese is also rapidly increasing. While the cost of living is high, the rate of income growth continues to decrease. And coupled with lower expectations of future income in an epidemic environment, consumption is not as easily boosted as it was in 2003.
To sum up, due to the complexity of the current situation, the phenomenon of 'retaliatory consumptio' after Covid-19 may not be so easy to occur.