Consumer confidence a key factor in recovery
As states and territories reopened their economies in various phases throughout May and June, it became clear that simply being open is not enough to get firing on all cylinders again. First, there are safety regulations limiting how many patrons a business can serve at a time. Just as important is consumer confidence. If shoppers don’t feel safe visiting a business, they’re not going to, and there’s no forcing them. Some services requiring intimate personal contact have an even harder time with this. Just because someone can get a massage doesn’t mean they’re comfortable with it.
By all accounts, confidence in the Australian economy is higher than in April during the height of lockdowns. A Melbourne Institute and Westpac index saw a record jump in May and a solid jump in June.
“Remarkably, consumer confidence is now back around pre-COVID levels, having recovered all of the extreme 20% drop seen when the pandemic exploded in March-April,” Westpac chief economist Bill Evans told Reuters. “Confidence has clearly been buoyed by Australia’s continued success in bringing the coronavirus under control, which has in turn allowed for a further easing in social restrictions over the last month.”
Australia certainly has done a better job than, say, the US or UK at containing COVID-19. But the pandemic is still going on, and there are bound to be flare-ups if there aren’t lockdowns. With things open, it’s more about handling small outbreaks before they become big. But that means being swift about closing schools when cases are confirmed among students, teachers, or staff. It means uncertainty hanging in the air as people know things are still fragile. It means not being able to fully open up to foreign visitors in a global economy. Some economic activity is miles better than almost none, to be sure. It’s not only better for businesses but for national morale. It feels good to be out of the house and able to move about in public. But whilst early adapters will happily go to the gym at any opportunity, other consumers will proceed more cautiously.
Reopening things with the virus seemingly contained opens up the possibility of another outbreak. Certainly, lockdowns can’t go on forever, and bringing Australians back home from lengthy exiles abroad is necessary, but each step out comes with risk. As has been seen with secondary outbreaks around Melbourne that led to more than 1000 Australian Defence Force personnel being deployed to manage things, setbacks are practically inevitable.
Each time something like that occurs, economic recovery stalls. It hinders interstate travel and plants a seed in consumers’ minds that maybe it’s not quite safe to go out just yet, especially after the country sees its first COVID-19 in more than a month.
Tourist areas in Victoria and Tasmania that lost money as a result of the bushfires were looking forward to a productive winter sports season to make up for it have now seen those hopes wiped out and will have to make do with severely reduced numbers. Still, some can’t help looking on the bright side.
“We’ve got a season, and that is something to celebrate from a couple of months ago,” Colin Hackworth, CEO of the Australian Ski Areas Association told the ABC. “People just really wanted something to grasp on to for this coming winter because the bad news has been coming and coming. And so a bit of good news … that really was a tonic that was needed.”
The economy that entered lockdowns was worldwide. People came from all over the world to spend their tourism dollars in Australia. Conversely, Aussie consumers could freely travel to far-off places. Now, even if they wanted to, they can’t. A travel bubble with New Zealand and some other Asia-Pacific countries could be coming soon, but in baby steps.
Domestically, stadiums and concert venues that rely on being full of people will struggle to generate revenue even if they’re allowed to host limited numbers. Pubs and clubs in urban areas won’t be filled to capacity for a while, especially given alcohol’s inhibition-lowering qualities that make practicing and enforcing social distancing all the more difficult.
Dire warnings, from the International Monetary Fund, of a worse global recession than projected in April not only reflect that consumers aren’t flocking out to spend money in droves but could demoralise others.
More innovation will come, as it must, but even then consumers tend to break down into early adopters, majority, and laggards. Without their confidence, a return to “normal” doesn’t happen.