Post-COVID shifts in consumption will affect credit fundamentals across sectors: Moody’s

Moody's

The sudden and broadly disruptive effects of coronavirus lockdowns and social distancing have led to a massive change in households’ discretionary and non-discretionary consumption patterns, Moody’s Investors Service said on Monday.

Some of these shifts will likely reverse once virus-related health fears ease and the economic recovery takes hold, while other changes will become more permanent either as health concerns linger or consumers favour the convenience, efficiency or cost-effectiveness of new types of consumption.
Moody’s said three behavioural shifts will likely drive the long-lasting changes in consumption: accelerated digitalisation, a greater share of time and consumption spent at home, and a transformation of travel, entertainment and leisure activity.

Lower-income households will undergo an extended period of lower capacity to consume. Returning to pre-crisis employment levels will take several years, limiting the consumption capacity of lower-income households.

Government transfer payments and forbearance measures will continue to help support these households, but a considerable drop-off in discretionary and non-discretionary consumer spending is likely once the support programmes end.

Consumer adoption of digital products and services will continue to accelerate, said Moody’s. For companies, the increase in e-commerce and digital consumption during the pandemic amplifies the imperative to invest in technology and transform business models to stay competitive.

At the same time, digitisation raises cyber risks for both companies and their customers.

Demand for products supporting at-home work and leisure will rise. Even once pandemic health concerns subside and more people return to physical offices and schools, demand for products that increase comfort, connectivity, efficiency and entertainment at home will increase.

This trend will create opportunities for companies that supply these products, said Moody’s in its latest credit outlook report.

Travel and out-of-home entertainment industry transformation will be ongoing. The supply-and-demand dynamics of group activities are poised for change.

Moody’s said providing safe travel and entertainment outside the home may become more costly and the shifts in consumer behaviour that occurred during the pandemic may be long-lasting.

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