janvier 27, 2023


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Has the pandemic permanently changed the ways we spend?

Covid-19 has undoubtedly changed many aspects of our lives, some of which we hope will return once the clouds have cleared from the pandemic.

However, there are some areas where our habits may have changed permanently and we are unlikely to ever fully return to the old ways.

One example of this is our relationship with our money and how we spend it.

Everything from online shopping to food delivery and an accelerating decline in cash use have been hallmarks of the pandemic.

And there were other indirect effects of Covid affecting our relationship with our hard-earned euro.

For example, things became more expensive due to inflation, and we had to be more patient as consumers because supply chain difficulties meant we had to wait longer for products to reach our doors.

Big Bang Change

Vladimir Lenin quote ‘There are decades when nothing happens; there are weeks when contracts happen’ ‘probably opportune because we look forward to life after Covid.

When we receded from the sanctity of our homes in March 2020, we had to adapt to new ways of doing things and instead of going out for our services, they came to us.

But some couldn’t and our spending simply dwindled.

The Central Bank concluded in a report on the impact of COVID-19 on consumer spending at the end of 2020.

The study found that total retail spending rose from 47% of card spending in 2019 to 55% a year later, with reallocation driven largely by changes in spending on groceries – supermarkets are one of the few outlets we can visit in closed case. .

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In contrast, as has been well documented, hospitality and event venues suffered.

According to figures from the Central Statistics Office, household spending fell by 10 billion euros in 2020 with the biggest impact on spending in restaurants and hotels, which fell by 6.5 billion euros.

A savings boom giving way to a spending boom?

Much of the unspent money in deposit accounts ended up with the savings rate skyrocketing among many Irish consumers – who already have a tendency to put money on deposits.

According to the latest data from the Central Bank, the level of deposits in Ireland reached an all-time high of 136 billion euros at the end of October.

This has increased by 24 billion euros since the outbreak of the pandemic.

But there are signs that money chains have loosened up a bit throughout 2021 as consumers slowly begin to part with their Covid savings.

Central bank figures for November showed household deposits fell by 1.4 billion euros per month, the first time since the summer that withdrawals exceeded deposits.

The Bank of Ireland Savings and Investments Barometer in the run-up to Christmas recorded the largest quarterly drop in attitudes towards savings among households indicating that our savings methods were regressing somewhat.

Mortar clicks

With retail outlets reopening throughout 2021, consumers have returned in droves to main streets and malls, contributing to record tax collections.

VAT receipts in Treasury VAT returns for 2021 indicated a healthy recovery in consumption last year, with receipts totaling €15.4 billion, a nearly quarterly increase from 2020.

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But the internet spending habit, which many took for the first time during the pandemic, has shown no signs of abating dramatically.

According to a CSO study on digital consumer behaviour, about four out of five consumers purchased goods or services online last year with people in the 16-44 age group likely to do so.

A consumer survey conducted by KPMG earlier in the year revealed that more than two-thirds of them said they are doing more online shopping than they did before the pandemic.

However, while more and more retailers are following this trend by making their products and services available online, much of the spending that goes through online channels still ends up leaving the country.

An analysis by payments app Revolut of Black Friday spending in December concluded that while nearly three-quarters of Black Friday spending was kept within the state, with the majority of spending done in person, the bulk of the spending was handled online. On foreign websites – about two-thirds of them actually.

This was an increase in 2020 when 39% of online shopping by Irish Revolut customers was done through local websites, and 61% was ordered from external sites.

Therefore, it may be a good idea to keep some old habits in place for now.

Despite the emergence of a highly transmissible omicron variant of Covid, consumers continued to shop in-store in the Christmas period as the last-minute rush to stores continued as a feature of the retail scene, despite public health warnings and advice to shop early to avoid disappointment arising from the difficulties supply chain.

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According to spending data released by the Bank of Ireland in December, about two-thirds of people preferred Christmas shopping in person rather than online.

Revolut spending data indicated spending increased in December at outlets where last-minute purchases including gems, department stores and toy stores are usually made.

Cash is no longer king?

No matter where people spent them, they likely didn’t make their purchases with cash.

After raising the minimum at which consumers could « benefit » from their purchases from 30 euros to 50 euros at the start of the pandemic, contactless payments inevitably rose.

The preference for cards over cash appears to have continued with the latest data from the Association of Banks and Payments showing that contactless payments reached a new high between July and September with around 234 million payments totaling approximately €3.8 billion being completed.

That was an increase of about 100 million « clicks » during the last quarter of 2019 before the outbreak of the pandemic, and in monetary terms, it was an increase of more than 2 billion euros.

It was the highest level recorded since BPFI began collecting data in 2016.

Banks and retailers are also catalysing this shift, with the former generally charging higher fees for ATM withdrawals rather than eavesdropping, while the latter, in some circumstances, choosing not to accept cash.

It looks like the end of the road may be near for liquidity eventually, but the ECB is certainly not giving up on it yet with plans to completely redesign the euro in the coming years.

Patience is needed with rising costs

One of the indirect effects of the pandemic on our spending patterns has been the recent decline in the purchasing power of the euro.

Consumer price inflation—something that has been largely absent for most of the past decade—is back with some gusto as economies bounce back from lockdown.

To a large extent, if it is largely confined to the energy sector with the costs of transportation and household utilities rising significantly, but this has an indirect impact on other categories, some of which have not yet been achieved.

For example, food producers and manufacturers seem to absorb significant cost increases which are expected to eventually pass on to the final consumer at some point.

So far, consumer price inflation in the food and beverage sector has remained below 1% compared to more than 5% in the broader consumer goods basket.

Some of the cost increases we see in areas like construction are the result of delays in getting materials to their final destination – and supply chain disruptions being the phrase we’ve all come to be familiar with – and shortages translate into higher prices.

The ECB’s mantra is to be patient and it will pass, but how long will that take anyone’s guess, and will they have to take action in the meantime, which means a potential rate hike that will affect most borrowers?

Getting back to normal will take some time, but the ‘new normal’ will likely look very different than it did before.