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What Happens If Most Businesses & Consumers Tighten Their Belts at the Same Time?

What Happens If Most Businesses & Consumers Tighten Their Belts at the Same Time?

Europe may be about to find out. 128 days with my Mother-in-Law.

As market players cling to the hope that a V-shaped economic recovery is still possible in Europe, to match the central-bank engineered rebounds of benchmark indexes such as Germany’s DAX and the Netherlands’ AEX, the reality on the ground continues to get worse for many families and businesses. On Tuesday, the Bank of Italy published the findings of a survey of Italian households on the impact of the lockdown. As you’d expect, most of the findings were pretty bleak:

  • More than half of the respondents said they have suffered a contraction of household income following the measures adopted to contain the epidemic.
  • Fifteen percent of households have lost more than half their income.
  • Some 40% of families are struggling to keep up with their mortgage payments.
  • More than half of the survey’s respondents believe that even when the epidemic is over, they will spend less on travel, holidays, restaurants, cinema and theaters than they did before the crisis.

No V-Shaped Recovery.

For most of these people, there will be no V-shaped recovery. Not only are they spending less money today, they expect to spend less tomorrow. While it’s true that people often say all kinds of stuff in surveys about how they will act in the future and then not stick to it, this particular response chimes with my own experience as well as the accounts I’ve heard from friends and acquaintances in countries as far and wide as Spain (where I live), the UK (where I’m from), Mexico (where my wife is from), France, Argentina and the U.S.

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