Summary
The COVID-19 pandemic is the most widespread epidemic in the history of mankind, which has claimed many lives and is a global tragedy. Against the background of human suffering, the problems in the economy seem insignificant. Still, they deserve attention since the possibility of the exchange of goods and production is the basis for the functioning of modern society. On the one hand, the natural decline in purchasing power and the slowdown of many industries can respond to the consumption crisis and positively impact the environment. It is high time for humanity to start limiting itself in consuming goods and services under the influence of emotional impulses or advertising. On the other hand, a significant decline in purchasing power may lead to market stagnation, inflation, rising prices, and a global economic crisis. This paper analyzes how the COVID-19 pandemic impacted customers’ purchasing power.
Impact on Manufacturing
A decline in purchasing power has significantly reduced the demand for goods in most developed and emerging economies, including the United States, European countries, China, India, Thailand, and the countries of the African continent. The decline in demand affected food, daily commodities, household goods, and larger investments such as real estate or personal vehicles. Therefore, various manufacturing markets began to look for ways to prevent or slow down the consumption crisis.
African Continent
For example, according to the Tony Blair Institute for Global Change, pandemics led to some disruptions in African manufacturing markets, implying the need for repurposing. It is reported that, as a response to decreased demand in many traditional sectors, “governments and the private sector have sought to seize an opportunity to pivot and repurpose manufacturing capabilities to meet national demand for essential medical items, and keep the economy and local businesses afloat” (Mamo, 2020, p. 3). The scholars foresee the increase in demand for medical supply products and suggest that the economic stress can stimulate further ‘much needed’ industrialization of the continent.
The scholars criticize the heavy reliance on imports that caused shortages in medical supply goods, meaning increased risks to populations’ health and safety. They add that “by repurposing existing manufacturing facilities, governments” could “avoid the costs and lengthy delays associated with importing and have greater control over supply” (Mamo, 2020, p. 4). No less important, the study showed that across West and East Africa, “more than 70 companies repurposed their manufacturing to produce Covid-19 supplies… textile companies, beverage companies, and educational institutions emerged as key sectors for repurposing initiatives at varying scales” (Mamo, 2020, p. 5). Therefore, countries like Ghana, Ethiopia, and Kenya have proven their manufacturing potential in the face of COVID-19 demand and supply challenges.
Indonesia, India, and Canada
Not only Europe and North America were startled by the economic effects caused by pandemics – Indonesian countries also met the challenges. Sulistiyani (2020) says that the freeze of the economic processes led to increased costs for raw materials, layoffs, and plant closures. At the same time, Syaputra et al. (2020) examined the impact of using the Lean Six Sigma tool on the success of Indonesian SMEs, noting the importance of taking concrete steps to overcome the crisis. The scientists concluded that business process analysis tools are powerless in an environment of total crisis, and enterprises need more serious measures, such as updating approaches to strategic planning or reorienting the supply chain, marketing and production to survive the crisis.
Interestingly, the slowdown in the economy of India was observed even before the start of the pandemic. Mukhopadhyay and Demand (2021) note that the pandemic exacerbated trends in falling consumer and investment demand and led to a sharper contraction of the economy. Therefore, the experts predict the possibility of direct government fiscal intervention to create demand and revive the economy. The authors then present an original seven-step model for fiscal stimulus designed for strong economic growth in the short term.
Canadian experts emphasized the devastating impact of the pandemic on the agricultural trade. The scholars stressed that “agricultural trade will be less affected as it is insulated by relatively low-income elasticity of demand,” although businesses should “expect a 12-20% fall in the real value of trade” (Barichello, 2020, p.). These are serious numbers for this type of business, and given that agricultural products need to be stored properly and sold more quickly, a decrease in demand can lead to a drop and subsequent increase in food prices.
In this regard, cereals are the least vulnerable to fluctuations, while perishable goods such as dairy, meat products, fruits, and vegetables are more vulnerable. According to experts, a decline in global demand could lead to import bans by less resilient economies, such as Russia or Kazakhstan, which may break trade agreements and impose embargoes (Barichello, 2020). Notably, since trade relations are often the basis for more successful political relationships, changes in global demand affect the political response of states less likely to adhere to the rules and regulations imposed by international trade unions and organizations.
Changes in Economic Paradigm
Interestingly, some experts note a change in the economic paradigm and the upcoming global changes in the external economic vision. In particular, Elyassi (2021) believes that the pandemic marked the end of the previous economic crisis, which continued with the reorientation of economies towards the global market that seemed to be a promising trend. The authors believe that many countries may return to the previous model when countries paid more attention to domestic trade relations, focusing on stimulating monetary policy in a free market (Elyassi, 2021). Such an outcome, however, is unlikely as local businesses have already appreciated the potential for foreign trade and will be reluctant to fall back on the old models due to their lower short-term economic potential, despite stronger long-term prospects.
The possibility of governments contributing to such a reorientation should not be ruled out, as exemplified by Brexit, which was accompanied by the breakdown of many trade agreements and a reorientation towards domestic production. Similar trends will probably affect other European countries, which will have to look for alternatives to world markets that have significantly slowed down. At the same time, it should be considered that population growth has led to an increase in purchasing power, which can recover quickly after the end of the pandemic and is unlikely to be comparable to the purchasing power of periods before the intensification of globalization trends.
Thus, it was analyzed how the COVID-19 pandemic impacted customers’ purchasing power. Stopping the work of manufacturing and service enterprises and falling demand meant a temporary freeze in economic processes. Notably, the prices of raw materials for daily consumption goods have risen, and the prices of agricultural products have also been threatened with growth. More general economic trends include the likelihood of state intervention in economic processes, the risks of breaking foreign economic trade agreements between countries, and a temporary reorientation to domestic markets to overcome the crisis.
References
Barichello, R. (2020). The COVID‐19 pandemic: Anticipating its effects on Canada’s agricultural trade. Canadian Journal of Agricultural Economics, 68(2), 219-224.
Elyassi, H. (2021). Economics of the financial crisis: Any lessons for the pandemic downturn and beyond? Contemporary Economics, 15(1), 100-122.
Mamo, L. T. (2020). Insights from Africa’s Covid-19 response: repurposing manufacturing. Tony Blair Institute for Global Change, London.
Mukhopadhyay, A., & Demand, I. (2021). Post-pandemic economic recovery: Seven priorities for India. ORF Occasional Paper, 295.
Sulistiyani, S. R. (2020). The impact of the Covid-19 pandemic on the manufacturing industry. International Journal of Research and Innovation in Social Science, 4(6), 172-175.
Syaputra, M. J., Purwanto, A., Suhendra, U., Septiadi, R., Kartika, H., Kusuma, R. D. P., & Haris, M. (2020). Do SMEs need Lean Six Sigma? Answer from Indonesian SMEs during the COVID-19 pandemic. Journal of Critical Reviews, 7(19), 2331-2340.