Why ‘new normal’ may end up prolonging any slump

FINANCE Minister Conor Murphy has predicted a “severe” recession as a result of the Covid-19 pandemic. The worlds of business and economics agree with him.

But how might the present recession, which is likely to have already begun, differ from the last (2008-2012)? It was characterised by waves of job losses in certain sectors and repossessions following the property bubble burst, banking crash and credit crunch.

Back then the construction, manufacturing and retail sectors were badly hit by job losses, which brought unemployment to a peak 8.3% at the start of 2013 — a record that at least one economist thinks will be surpassed this time.

Buoyant consumer spending helped the economy recover, though we’ve never returned to the levels of output of 2007.

But this time the overnight shutdown of the economy has meant that almost all sectors are suffering and a consumer spending boom just isn’t possible.

Our usual outlets for spending — holidays, pubs, restaurants and shops — are no longer available to us, apart from shopping or ordering online.

One of the greatest risks to the economy presented by the present circumstances is whether it presents a lasting change in our habits.

We’ve spent nine weeks in isolation without our usual crutches of consumer spending and socialising.

Many of us have adapted to new habits of working from home. Even when pubs, restaurants and clothes shops do reopen, we may be less likely to use them if we’ve lost the habit.

We’re prepared to queue to get into supermarkets to do our essential shopping, but will we have the same patience for queuing to go into clothes shops?

The last recession also brought shop closures as people had less disposable income, and online retail was starting to lift off.

That trend has only gathered pace since then, and Covid-19 has accelerated the failure of retailers like Cath Kidston, Warehouse, Oasis and Laura Ashley. They won’t be the last.

The hospitality sector will also be hit by a loss of tourism spending as strict quarantine requirements are likely to put off foreign visitors.

The working from home trend will hit businesses like sandwich and coffee shops, and restaurants. Corporate entertaining has stopped, which cuts off a comfortable stream of revenue for many.

Even when office-based firms do bring back their workforce, it’s possible only a fraction will be in at any one time. One major city centre employer is expected to have just 300 out of 1,200 staff in the office at a time.

Some have been reflecting that the pandemic and lockdown has left them “less materialistic”: who is there to impress with a new suit or dress when you’re working from home?

Business and the economy may find themselves confronting a whole new set of values ushered in by Covid-19.

While we can try and understand our present circumstances, we also can’t predict the future.

One commentator who was around for the last recession admits that they did not foresee the rush of jobs created in the services sector, tourism and film and TV, which has helped increase the vibrancy of the economy here in the last few years.

There’s no crystal ball this time, either. So maybe the best thing for the economy is to get out there and spend when we do eventually get the chance.