Consumption won’t return to normal after COVID-19 vaccine – Marmara-Muscat report

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Economic activity would increase significantly when a COVID-19 vaccine becomes available, but would still be around 10% lower than pre-pandemic levels, according to a report drawn up by statistician Vince Marmara and former PM Joseph Muscat.

The report is based on the findings of a telephone-based, scientific survey conducted by Dr Vincent Marmara and Sagalytics during the second week of May 2020, and is supplemented by a resulting economic analysis carried out by The Office of Dr Joseph Muscat.

It found that economic activity is still expected to fall considerably despite the easing of measures, as the Maltese seem to prefer to wait for a vaccine before returning to a normal level of activity. But even then, consumption is expected to be lower than that prior to the pandemic, indicating that COVID-19 could have long-lasting effects on the economy.

This is also the case with the younger generations, who are less susceptible to COVID-19 complications.

Fear of contagion

Participants were asked about their use of particular services before and during the pandemic, and their expected consumption after a vaccine becomes available.

These services include restaurants and coffee shops, clothes and footwear shops, furniture and appliances, a break at a local hotel or at a farmhouse in Gozo, a holiday abroad and the use of public transport and taxis.

The results show that, on average, consumption activity under these categories would fall by around 81% during the pandemic. Respondents indicated that, during this period, they would forego the services that they feel would pose the highest risk of infection, particularly activities that bring them closer to other people.

Demand for holidays abroad, for hotel breaks and for Gozo farmhouse stays fall by 93%, 90% and 87% respectively.

The use of public transport sees a fall of 80%, even after the lifting of restriction measures.

Retail activities, coffee shops and the use of ride hailing services are expected to be affected slightly less during this period.

Less than before

Activity across these sectors is expected to be boosted significantly with the arrival of a vaccine but would still be around 10% less than pre-pandemic levels.

This, the reports states, could be the result of incessant campaigns urging people to stay inside.

“Nevertheless, as the narrative slowly changes, one might see a more positive shift in outlook, and thus confidence and consumption, by consumers.”

The findings could indicate that the current medical and economic uncertainty is negatively affecting consumers’ perception of their future financial position. “In other words, even households that are not currently experiencing financial difficulties, are cutting back on expenditure because of fear of the unknown.”

Female respondents were more likely to cut the consumption of the activities and services under consideration than their male counterparts, both during the COVID-19 pandemic and even after the availability of a vaccine.

Despite the scientifically proven lower level of susceptibility of the younger cohorts to COVID-19 complications, respondents aged 16-25 are expected to cut consumption activities across all sectors by around 80%, the study found.

“Indeed, these figures might suggest that contrary to a-priori expectations, the younger cohorts are not expected to boost their consumption pattern significantly after relaxation measures.”

The exception to this is consumption in restaurants and other retail, where the activity levels for this age group is expected to surpass pre-pandemic levels.

 The COVID-19 wage supplement

The COVID-19 wage supplement is quite effective in temporarily sustaining expenditure at this point in time, the respondents showed.

This, however, should not be interpreted as suggesting that economic recovery could take place through such subsidies, the report continues.

Increasing the subsidies could be the popular option, but would “surely” be unsustainable and probably lead to a collapse in public finances, a decrease in productivity and competitiveness and spiralling unemployment. It could also lead to social tensions.

A less popular but more effective option would be the tapering of benefits.

Childcare

Around a fifth of respondents said they have a child younger than five.

Half of these used to send their children to childcare before the pandemic.

Only 17% of respondents said they would send their children to childcare before a vaccine is found. 53% would make use of such facilities after a vaccine becomes available.

This reluctance would mean that at least one parent is staying at home to care for the children.

“This has major economic and social repercussions as it implies that there is a concrete risk of workers deciding to drop out of the labour force for the duration of the pandemic, impinging negatively on the supply side of the economy.”

Women, especially those from a deprived background, are most likely to suffer, the report continues.

(source: Wikimedia Commons/ John Haslam, originally posted to Flickr as Ships that pass in the day; Gozo to Malta Ferry)

Financial incentives

Respondents were also asked whether they would: a) stay at a local hotel; b) go for a break in Gozo and; c) do house maintenance or change appliances if the government offered financial aid.

In the case of internal tourism, demand would increase threefold with financial incentives, but would still be less than half of pre-pandemic levels.

65% said they would go for household maintenance and upgrades, given financial incentives.

Participants were asked what measures and guidelines could help make them feel safer in certain establishments until a vaccine is found.

Use of hand sanitisers and facial masks as well as regular cleaning are the three mitigation methods that are by far preferred by Maltese consumers.

Many also mentioned a certification mechanism by the competent authorities.

Other measures included online cameras in shops to watch cleaning procedures and crowding, and cameras in restaurant kitchens.

Younger generations are more inclined to believe that contactless payments reduce the risk of contagion.

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