When the Covid-19 crisis finally draws to an end, things will be different and among the more significant changes will be an acceleration in the shift towards digital.
Covid-19 will accelerate shift towards digital
Right now, amidst the horror of this crisis which is dominating thoughts of millions, maybe even billions of people around the world, it is difficult to imagine what things will be like when it is over.
Any judgement we make about the future will be clouded by our current mindset.
There is so much we don’t know. Obviously, there will be a massive economic recession this year, probably the biggest contraction ever recorded in peace time. Will this be followed by an economic depression? Some think it will. One thing is for sure, the millions of people who have lost jobs across the world won’t immediately go back to work when this crisis is over. It will take time for aggregate demand to start circulating again
I am revising my own view of the timing of an economic recovery all the time. At one point, I thought the economic recovery will be swift. After-all, it is not like there isn’t economic precedent for a shut-down. Many European economies, such as France, shut down for two weeks every summer. We see a shutdown over the Christmas period too. Lost economic output seems to be compensated for within weeks. Looking at annual economic performance, these types of shutdowns barely flicker on the GDP radar.
But this is different. The shut down is for longer and it’s worldwide.
For that reason, the recovery will not be instantaneous. Let’s assume a vaccine is issued this time next year and we can officially say that Covid-19 has been defeated. There will be an economic recovery of sorts — output would have sunk so low that of course there will be rapid growth — it’s in the maths. A more pertinent question relates to how long it will be before the economy returns to the level of output seen before the crisis? And then how long, if ever, before the economy reaches the size it would have been had the crisis not occurred?
Once the crisis is over, I think it will take between 18 months and two years before the economy is back to where it was. But I also think, and this is a controversial view, once the economy has recovered, it will grow much faster than before.
How long will that take? I think that at some point between 2023 and 2025, the economy will be in better shape than it would have been. I am assuming here that we don’t have any other disasters and I also assume that we don’t see a major reversal of globalisation. If either of those things happen, I believe the 2020’s will be like the 1920s in the UK and 1930s in the US.
As for the markets. I think they have further to fall. At some point a buying opportunity will emerge, but not yet.
Shift to digital
The post Covid-19 world will also be characterised by a much more digital approach to business.
This will be partly because of the shift towards remote working. As millions of workers enjoy the delights of home working for the first time, companies will become used to this approach. In the aftermath, many will choose to continue with a much higher level of remote working. This will reduce the size of office space they need, saving money but with a negative impact on commercial property.
We may see a further hollowing out of city centres as a result, more localised shopping. Roads will become less crowded, trains too. Former commuters will save a lot of money, increasing their disposable income
In parallel with this, we will see a rise in automation technologies. This is already happening. A recent report from EY found that no less than 41 per cent of company bosses across 45 companies are accelerating plans to automate their business as a result of a Covid-19.
Who do you invest in?
I would expect the trend we saw in the last decade to, if anything, accelerate. Smart phone use, social media use, popularity of subscription TV channels, online shopping, use of the cloud, video conferencing tools, they will all increase.
I would also expect demand for electric vehicles to increase, as we re-discover the benefits of clean air, although the super low cost of oil may mitigate against this.
So which companies will benefit from this acceleration to digital? Although I think you already know.
They are Apple, Alphabet, Microsoft, Amazon, Facebook, Salesforce, Nvidia, Netflix, Disney etcetera.
Tesla, assuming it can survive the next year, will benefit.
For a smaller UK listed company I think intelligent automation company Blue Prism could be another beneficiary.
This crisis is horrible, and will leave an indelible mark but it will end eventually, and providing we don’t do anything stupid like looking for countries to blame and reverse globalisation, things will improve. Some companies will flourish in this new world and we should watch out for the accelerated rise of China and decline of the US.
These views are those of the author alone and do not necessarily reflect the view of The Share Centre, its officers and employees