change direction / scyther5

Lockdowns in response to Covid-19 may have fundamentally shifted household consumption patterns, as consumers that were forced out of their typical spending habits may never return to those behaviours, according to a new working paper from the Bank of Canada.

The research, based on survey data from five European countries (France, Germany, Italy, the Netherlands and Spain) that was collected after the end of the initial lockdowns, found that the pandemic episode may have permanently altered consumer spending.

“The elongated and profound experience of the Covid-19 crisis may durably affect consumer preferences,” the researchers found.

Even after public health restrictions were lifted in those European regions, the researchers found that consumption dropped significantly in a number of areas, including travel, public transportation, retail and hospitality.

Researchers also collected data on consumers’ reasons for shifts in their consumption, finding that many households said they realized that they didn’t miss consuming certain products or services during the lockdowns.

For example, 23% of households in France reported not missing personal care services, such as hairdressers, and 21% in Germany didn’t miss going out to restaurants.

Moreover, the paper noted that these behavioural shifts were particularly evident among high-income households.

“The fact that mainly high-income households realized, through the lockdown experience, that they do not miss consuming certain things might reinforce the magnitude of the change in consumption habits,” the paper said.

The researchers said that these findings have important public policy implications, too.

“First and foremost, government support to businesses should consider the idea that this crisis is not purely a liquidity shock and that everything might not snap back to normal once it is over,” the paper said. “Profound and elongated experiences, such as the COVID-19 pandemic, have the potential to create new habits and produce a long-lasting shift in behaviour,” the paper said.

The researchers also argue that the results indicated that broad-based policies designed to restore consumption to pre-pandemic levels, such as by cutting sales taxes, aren’t likely to be effective.

“Financial constraints are the least reported reason for consumption drops,” the paper said. “Instead, fiscal support should be laser-like in targeting those low-educated, low-income households that were particularly hard hit by the crisis.”

Finally, the paper found that there may not be much of a trade off between securing economic prosperity and preserving public health. For example, it noted that shifts in consumption were highly correlated with the severity of the pandemic (in terms of death rates), even after restrictions were lifted.

“Behavioural factors such as macroeconomic expectations (pessimism) and psychological factors such as fears about the future are significant variables explaining individual households’ drop in consumption,” the paper concluded.

“Hence, governments should treat the control of the infection risk as a prerequisite to achieving their objective to preserve economic prosperity.”