![]() However, there is uncertainty over what might happen to jobs once government support is withdrawn. As short-time work programs have helped to protect employment (although with shorter working hours), there is a higher chance for employees to maintain their jobs and avoid a drop in disposable income in 2021. We expect a slower but more balanced recovery in Europe, with less pronounced inequality than in the United States. Lastly, we focused on income and did not analyze the overall impact of the pandemic on household assets and net worth. In our savings calculations, we focus on the difference between household disposable income and consumption, neglecting non-consumption expenses such as transfer payments, fines and interest payments given their small size and stability over time-about 4 percent of consumption value over the past decade. Our aggregate income and consumption projections to 2024 do not explicitly consider the impact of changes in the mix of disposable income sources (wages, assets, or transfers), nor make assumptions about the impact of changes in consumption mix on specific consumer segments. ![]() However, while forecasts presented in this report might change in terms of pace of the recovery, conclusions regarding the underlying drivers and relative performance of consumer segments are likely to remain broadly unchanged. While we have taken a scenario approach given the high degree of uncertainty surrounding the trajectory of the virus, the extent of government stimulus, the extent of perceived health risks, and the level of precautionary savings, risks to these scenarios remain. In this report, we focus on three scenarios perceived to be among the most likely by our global business leader panel at the time of writing the report-A1, A2, and A3-all of them assuming no structural damage to the economy, yet a different pace of recovery. Those scenarios provide a range of key aggregate variables related to consumer spending (for example, disposable income, employment, private consumption) and are developed based on a set of assumptions regarding virus control and economic response to the crisis. We relied on McKinsey’s economic scenarios developed in collaboration with Oxford Economics as the basis for our macroeconomic assumptions. To do this, we made assumptions about disposable income, savings, and consumption mix evolution as well as behavioral assumptions about the likely consumption rebound after the pandemic ends. Our main objective was to understand how consumer demand by segment was likely to recover after the pandemic. By cross-tabulating income and age criteria, we arrive at nine consumer segments that we use to assess the shape of post-pandemic consumption. For age, we divided households into three groups based on head-of-household age: young (<35, for the United Kingdom only <30), middle age (35–64, United Kingdom 30–64), and older (65+). For the United States we used fixed income brackets due to data limitations where low income is $100,000. For income, we took a distribution-based approach and classified households into low income (first and second quintile), middle income (third and fourth quintile), and high income (fifth quintile) for France, Germany, and the United Kingdom. We do this for four countries: France, Germany, the United Kingdom, and the United States. In this report we divide consumers into nine segments based on their disposable income and age, as both criteria shape the size and structure of consumption. Understanding what that means for consumer behavior and the recovery in consumer spending-a critical factor for the global economic recovery-is the focus of this report. While there is reason to be optimistic for a robust recovery in consumer spending once the COVID-19 virus is controlled due to pent-up demand and a significant accumulation of savings, the pandemic, like other crises, will leave lasting marks. Employees able to work from home have maintained jobs and income, accumulating more savings while forced to cut back on spending from lock downs, travel restrictions, and health fears others lost jobs and income or closed down businesses and have struggled to pay the bills. And just as the coronavirus has affected regions and individuals in vastly different ways, the economic impact has also been very uneven. All of a sudden, consumers were forced to change behavior, companies to transform business models, and governments to adjust regulations. Full Report (PDF-2MB) Executive Summary (26 pages)Ĭonsumer spending, a major source of economic activity, collapsed as the first wave of the pandemic swept across countries in early 2020.
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