How much does a lockdown hurt spending?

Posted by: Paul Donovan

20 Mar 2020
  • Fear of the coronavirus has caused governments to lock down parts of the economy. In Europe and parts of the United States, bars, restaurants and some shops have shut.
  • Total consumer spending will not fall to zero.  In Europe and the US, housing and utilities are the largest part of consumer spending. That does not fall. Food eaten at home will rise as people stop eating out. It will increase with panic buying. Spending on health is unlikely to fall. Spending on communication is unlikely to fall. Parents with teenage children home from school will need to spend on mobile phone services.
  • Some spending is delayed. People are less likely to buy home furnishings when stores are closed. However, when stores reopen, they will spend. This delay is "pent-up demand."
  • Some spending is lost. If a local restaurant is closed, people will not delay eating until the restaurant reopens. Spending can go back to normal after the crisis. There is no pent-up demand to take spending above normal.
  • In the Eurozone, stable or rising spending is around 60% of consumption. Delayed spending is 15% of consumption. Lost spending is 25% of consumption. Consumption suffers a lot in a lockdown. It will not go to zero.

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