A second lockdown birthday and ushering in the Roaring ‘20s?

What's common between a 2nd lockdown birthday and the Roaring '20s you ask?

 

A high potential for a consumer demand comeback, that is what's common.

Let me dial back a bit.

I celebrated my second birthday in lockdown around two weeks ago. It was a jovial day, full of gregarious chats with family and lifetime friends. Beautiful wishes on social media - facebook and LinkedIn, mainly - made it even more special. I cut my favourite, if atypical, birthday cake: a cheesecake. And, I had some bubbly to go with it.

Sounds like a pretty decent day, right?

Except that this year, unlike the last one, I really felt like being out and about on my special day. And I could not, so I am somewhat impatiently holding-off the real celebration till such time that I can. Outdoor dining opens here from April 12 onwards.

But in feeling this impatience - I finally connected with a sense of what has widely been called the ‘pent-up consumer demand’. This demand is expected to lead to a spurt in consumer spending over the rest of the year and maybe even carry over into 2022.

In fact, some forecasts are saying that we may even be back to the ‘Roaring 20s’, which refers to the 1920s - a decade of economic boom in the western world.

 

So far, I have been skeptical of the idea of a ‘Roaring 20s’ comeback. There are many reasons for this. 

 

The pandemic is still not over, and till authorities in the know say that it is, I have no reason to think otherwise. 

Growth numbers are showing signs of comeback, across economies and industries. This is a definite positive. But we need growth continuity for an economic boom. We do not have the numbers to support that yet. 

 

Further, even before growth can come back in a big way, my big fear is that inflation will start rising, putting brakes on fledgling growth.

Also, there are concerns across countries. 

 

The US and China are the two biggest economies in the world, and so far as there are stresses between them, some growth is being lost. Post-Brexit UK is now also (almost) post-Covid UK. This unique situation can produce its own challenges. The world has racked up significant public debt, which will take years to bring back to pre-pandemic levels.

Yet, increasingly, I find that there are mounting arguments that support the ‘Roaring 20s’ thesis too. Here are a few:

• The US’s $1.9 trillion fiscal stimulus package can have a big multiplier impact on consumption spending over a period of years, if done right. 
  

• In the UK, households have saved over 16% of their disposable income in 2020, the highest on record. Whether these savings are funneled into investments or consumer spending, this is a win for the economy, possibly even with long-lasting effects.

• House prices in the UK have been touching new highs. Closely associated with this is what in economics is called ‘wealth effect’. As the value of our assets rises, we tend to spend more. In other words, more consumption can be expected. The same is true for other assets - like stocks, for instance. And stock markets have been rallying too. 

• Greater technology adoption will continue to drive some of the growth, as it did a 100 years ago. Covid-19 has not only clarified but increased our dependence on technology for shopping for daily needs items to one-off purchases. From Amazon to Tesco, delivery providers have stepped up their game, which can reinforce demand.

• China’s public spending has improved the fortunes for companies from miners to luxury brands. This can continue for the foreseeable future as well. 

From a skeptic, I am coming around to cautious optimism. The 2020s may indeed be 'Roaring'. Does that mean that from quiet birthdays we go back to Gatsby-sized parties too? Let’s wait and watch.