COVID-19 Rapidly Eroding Consumer Confidence
In the months ahead, a series of cascading events will cause a global drop in consumer confidence, according to the latest report by The Conference Board.
The COVID-19 pandemic triggered a downward economic spiral. This was followed by government restrictions that suddenly shut down businesses and halted consumer spending in various areas, causing a significant decline in confidence throughout all regions of the world heading into the second quarter.
The Conference Board Global Consumer Confidence Survey 2020, conducted in collaboration with Nielsen, describes the state of the consumer at the onset of COVID-19.
The report includes an updated analysis of 15 major economies around the world, addressing the different timings of the impact of the crisis on consumer confidence.
Takeaways from the report:
In the coming months, a worldwide domino effect will cause significant declines in consumer confidence.
Government lockdowns to contain the COVID-19 pandemic and the drying up of consumer spending have been the catalysts of a domino effect that is well underway.
As job losses from shuttered businesses reduce incomes and stress household finances, consumer demand will continue to weaken, further destroying jobs and stable sources of income.
Those losses will then weigh on personal finances and further curb spending intentions.
These consequences form a downward spiral that will continue in the months ahead, decreasing consumer confidence. How quickly these dominos – spending, jobs, and personal finances – fall, especially in countries implementing shutdowns, will determine how fast consumer confidence drops across specific global markets.
The drop in confidence and ensuing recovery will depend on each market's containment measures and policy response.
Vast differences in government infrastructures for dispensing immediate aid means that governments with more nascent wage and income support policies could face difficulties as they implement financial relief. Examples include:
- US, UK, and Canada – Newly developed wage and income support programs might struggle to dispense consumer aid in time to bridge gaps in spending and bolster confidence.
- Germany, France, and Italy – Despite strict containment measures halting economic activity across Europe, well-established wage subsidy and job retention programs in these countries keep businesses afloat and workers employed. The existing programs make consumer confidence more resilient than other markets in the longer term.
- Emerging Markets – In Brazil, Mexico and India, factors including job losses, falling incomes and a general lack of a social safety net will weaken household consumption and consumer confidence for a longer period.
In addition to the needed infrastructure to effectively dispense government aid, the severity of lockdowns also plays a role. For example, South Korea, reporting some of the earliest signs of dampening consumer confidence due to COVID-19, didn't enact economically crippling lockdowns or mass layoffs. Those avoidances may lead to a faster rebound in confidence than in other markets.
"While certainly helpful, the policy actions being taken in most economies – even wage subsidies for employers and direct cash handouts for workers – will inadequately sustain spending and buoy consumer confidence in the short term," said Elizabeth Crofoot, senior economist at The Conference Board. "Coupled with escalating fears about continuing everyday activities, and second-wave outbreaks, we anticipate significant declines in consumer confidence across all regions through at least the second quarter of 2020."