THE GREAT RECESSION vs THE COVID-19 RECESSION

Economic contraction due to COVID-19 is underway and on May 26, 2020 the estimated gross domestic product ( GDP) growth is likely to be 4.2 per cent for FY20 and (-) 6.8 per cent for FY21 according to the SBI's research report – Ecowrap. A recession is a foregone conclusion and comparisons to the 2008-09 financial crisis are being made to give context to the severity of the current situation. However, while the economy is in decline, the factors leading to The Great Recession, its duration, and lasting impact on consumers are (and will be) very different. This report discusses how, why, and what it means for companies and brands today.

What happened then (The Great Recession) ?

Why this time it’s different (COVID) ?

What to expect next ?

• Budget cuts In times of uncertainty, consumers evaluate their lifestyles and reduce their spending where they can. Dining out, entertainment, personal treats, and travel are the first to be cut during “normal” downturns. COVID-19 restrictions mean that spending in some of these areas isn’t even an option.
• Contingent on containment From an economic standpoint, recovery is contingent on COVID-19 containment. Prevailing expectations indicate this will take place in July or August 2020. Consumer confidence will lag by a couple of months leading to a sharp contraction in Q2 2020, spilling into Q3, and potentially into Q4.

2 Major Economic indicators that play a role in predicting consumer spending patterns : 

Unemployment

High unemployment has not only a financial but psychological impact on consumers. The economic scarring from job loss and uncertainty

and stress over paying the bills can last well beyond the actual downturn. Fewer people working means less spending and a focus on the

necessities. This downturn promises to alter consumer priorities beyond the recovery period. Many frugal behaviours adopted during 2008-09 (e.g. saving, comparison and discount shopping, ecommerce shopping, and prioritizing free shipping), have lingered on to become the norm.

Confidence

Consumers will look to economize where they can. Post-pandemic priorities will look different than before. Perceptions of value will change and consumers will question whether premium-priced products are worth the additional price. In a downturn, consumers are less willing to pay more – but can be persuaded to if tangible and measurable benefits are clear. Consumers will reconsider how they spend both their time and money. Although people are desperate to return to normal, after experiencing a slower pace of life, some may have a new appreciation for the simple things which could translate into less spending.

What it means?