The COVID-19 pandemic has had a major influence on every facet of life this year. Now, an effective vaccine appears to be coming in early 2021. A vaccine is not an on/off switch, however, and life will not go back to the way it was pre-pandemic. Some pre-pandemic trends were accelerated and are here to stay. The financial damage was severe, and the recovery will not be even or smooth. Let’s take a look at six themes for 2021 assuming an effective vaccine is widely distributed in next year.
1. Work from Home. The trend toward more flexible work arrangements was in place before the pandemic. The forced work from home accelerated it. With a vaccine, white collar workers will go back to their downtown office towers, yet with much more flexible work arrangements and much less business travel. Headwinds will continue for downtown business districts, including restaurants and hotels, as well as less demand for office space. Once thriving downtowns will take time to adjust and re-invent themselves. Airlines will need to re-think the economics of permanently dampened business travel.
2. Online shopping. The trend away from brick and mortar stores was entrenched before the pandemic, but online shopping and home delivery received a major boost from the pandemic. This trend has accelerated in a powerful and permanent manner. There will be a place for some physical storefronts, partly as showrooms for online shopping, yet many stores will never re-open. Commercial real estate will take years to adjust.
3. Allocation of consumer spending. Consumers will travel again. There is pent-up demand for tourism experiences. Consumers have been buying home furnishings during the pandemic shutdown. With a vaccine, the desire for social activities may reignite spending on clothing and fashion. Restaurants will be popular again, but not necessarily in the same locations, given the challenges to downtowns and the opportunities in the suburbs. Climate permitting, outdoor dining will remain extremely popular, so new restaurants will be designed differently.
4. Lingering effects of financial distress. Commuter railroads and transit systems are in dire financial condition. They will need massive federal assistance to return to pre-pandemic service levels, but the demand may not return all the way back. State and local governments will have to layoff thousands of workers unless they receive federal assistance, as their revenue streams will take three to four years to recover, even with a vaccine.
5. Inflation. The pandemic caused elevated unemployment and dampened overall demand. Central banks expanded their balance sheets to accommodate fiscal policy expansion in a new world of Modern Monetary Theory. Assuming more fiscal stimulus and continued buying of government debt by central banks, there will be an open debate about whether inflation fires are being lit, or not.
6. Globalization. The pre-pandemic trade tensions were a headwind for global trade. The pandemic at first accelerated that trend as China shutdown. China, however, had the virus first and beat the virus first, emerging with a strong economic recovery and more influence in the changing global order. We are also seeing changes in currency payments reflecting the growing importance of trade diversification, with the euro catching up with the US dollar as payment currency.
Without a doubt, 2021 will be a fascinating year of transition – and, we hope, recovery.
Bluford “Blu” Putnam has served as Managing Director and Chief Economist of CME Group since May 2011. With more than 35 years of experience in the financial services industry and concentrations in central banking, investment research, and portfolio management, Blu serves as CME Group’s spokesperson on global economic conditions.
View more reports from Blu Putnam, Managing Director and Chief Economist of CME Group.
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