new post pandemic world · 2020. 5. 11. · people who will go back to pre-pandemic normal life...
TRANSCRIPT
Post Pandemic World
How life will be different post covid19
May 2020
www.enselsoftware.com
Why post pandemic economy will be different?
• A sizeable portion of
population will be
nervous to mix freely in
society even when lock
down is lifted.
• It could be mitigated by
vaccine or proof that no
new infections, which are
unlikely as it stands.
All people =
Total consumer market
when people were
moving around freely
without any social
distancing in place
Pre Pandemic
People who will go back
to pre-pandemic normal
life
Post Pandemic
People who will continue
to follow strict social
distancing
How it will affect the businesses?
• Every business has some costs. It consists of
fixed cost and variable cost.
• Fixed cost is set up cost and running costs of
the business even before making any sale.
Variable cost usually increases with volume of
sell.
• A business needs a minimum number of sales
in order to reach the breakeven point. Before
that is reached, the business runs at a loss.
• Every business aims to be in far right of
break even point in order to maximize profit.
Breakeven
point
Loss
zone
Profit
zone
Units of products (or service) sold
Mone
y £
Example: for an airline, the fixed cost is high because. The
difference between carrying 1 passenger vs 100
passengers are not big. Hence, airlines try to maximize
profit by flying aircrafts full of passengers.
What happens during pandemic?
• For businesses other than essential services,
the sales volume is either zero or very low.
• This means most businesses are running at
huge loss.
• They can still survive (i.e. not go bankrupt)
till they have reserve cash (because
businesses go bust not because they make
loss for sometime but because they run out
of cash).
Loss
zone
Units of products (or service) sold
Mone
y £
The government is providing emergency loan to many businesses. But keep in mind, these loans are
to be paid back over time. With reduced sale in future, the businesses are likely to make even less
profit.
What will happen after pandemic?
• Once lockdown lifted people are expected to
go back to normal lives.
• However, as there will be fewer consumers
buying products/services (in short term for
sure, if not long term) most businesses will
take even longer to reach profitable zone.
• Those businesses which requires achieving a
high number of consumers to reach
profitability, may not even reach that point
ever – resulting in folding up of the business.
Breakeven
point
Loss
zone
Profit
zone
Units of products (or service) sold
Mone
y £
The debt burden on businesses will grow over time. A
point may arrive whether the revenue generated can
no longer service the debt (i.e. pay monthly interest
payments).
The economic cycle and debt bubble
Investors
Businesses
Consumers
Businesses borrow
money from
investors and
produce
products/services
Businesses sell
products/services
to consumers.
Profit = Revenue from sales – (fixed cost + variable cost) – debt interest - tax
Number of consumers
reduced due to fear
following pandemic. Overall
sales volume falls thus
revenue from sales also falls.
Businesses start getting default
on debt repayment and once
savings are used up, business not
sustainable anymore.
Investors lend
money to
businesses
Investors’ securities (e.g.
house mortgaged against loan)
values plummet and they
refuse to lend anymore
Inflation rises slowly
during normal economic
growthDeflation = economy
contracts
When banks lend, money is created in economy. So debt
creates money. No lending = no debt = no money.https://positivemoney.org/issues/debt/
How lifestyle will change?
Pre Pandemic Life style Post Pandemic
Large offices
Face to face meetings
Work From Home
Video conferencing
Crowded public transport
No commute (WFH)
Personal car transport
Increase wealth at any cost
Health is wealth
What does it all mean?
• Some traditional industries will no longer be
profitable.
• Some new industries will flourish. Delivering services
remotely will gain social acceptance and will
become mainstream.
• Technologies will be great enablers.
• Overall economy may see a deflationary spiral in
the short term.
Hospitality, Transport,
Sports, Fintech, Real
Estate
Healthcare, Technology
Covid19 pandemic is a flying T-Rex event, meaning hugely
disruptive and completely out of the blue! It has far more impact
than Black Swan event.
What Government and Central Banks can do?
The free market economy model in most countries, is based on Keynesian model.
GDP = C + G + I + (X-M) = Consumer spending + Government spending + Investments + (Export – Import)
Falling demand
Falling revenue
Debt default
Bankruptcy
Unemployment
Less consumer spending
• Government can kick start economy by
1. Reducing interest rate – making it easier for people to
borrow money and invest in economy (cannot reduce any
further)
2. Quantitative Easing = printing more money by Central
Bank
3. Increase expenditure on infrastructure to increase
economic activities and indirectly put money in economy
via people employed to government projects.
4. Debt restructuring e.g. writing off debt full or partially.
5. Wealth redistribution e.g. raising taxes for riches,
increasing benefits to put money to the masses.
How economic machine works
https://www.youtube.com/watch?v=PHe0bXAIuk0
WHAT IT MEANS FOR ME?
• Until you catch Covid19, you won’t know whether its effect on you will be mild or severe. Hence, be cautious so that
you don’t get it. If you get infected, don’t panic and follow advise from medical professionals.
• Be aware that life will be different post pandemic
• At least in short term, if not long term
• Better to accept the changes than resisting it
• Enjoy life – don’t ruin your present for an unknown future
• Evaluate how the changes will affect you.
• If positively then explore the opportunities
• If negatively then investigate how you can mitigate the situation
• Understand how it can effect your long term plans
• Take care of your health.
• Be aware of your health conditions.
Economic recovery over next
1-3 years