Dato’ George Stewart LaBrooy | With a career spanning over 40 years in the industrial space, Dato’ Stewart LaBrooy, the Executive Chairman of the AREA Group of Companies speaks and writes on property and REITs on a regular basis.
“2020 will be remembered as the year of “Black Swan” events. As I sit to write an op-ed on what is happening in the world, I was reminded that we started the year with horrific images of the Australian bush fires that would not be out of place in a visual interpretation of Dante’s “Inferno”.
This was quickly followed with a plague of locusts of biblical proportions ravaging crops in Africa, whilst the Arctic and Antarctica are melting at an unprecedented rate and major cities around the world choking on toxic air, and the deadly discovery of the new Novel Coronavirus “Covid-19” followed by the collapse of stock markets around the world. All in the space of three months!”
The pandemic caused by the Covid-19 pandemic has forced shutdowns of whole economies around the world as Governments struggled to control the “invisible enemy”, leaving millions out of work with no income. It appears that the Apocalypse has indeed arrived, and nature has delivered a knockout punch that will take humans time to recover from.
So, here I am sitting at home under a national lockdown trying to make sense of what’s happening.
One thought runs through my head and that is – we have much to learn from what is happening to us right now.
How it will play out is anyone’s guess but for sure – a “New Normal” has arrived, bringing big changes that await the world.
Human beings have relentlessly causedthe destruction of our planet over the last five decades in search of never-ending growth, profits and all the while promoting excessive consumption without pausing to think what the end game would be.
Well, Covid-19 is the first instalment of what may come and human beings are starting to reap the results of their greed and stupidity.
When we get through this debacle, there will emerge a “New Normal” and it won’t be anything like the one after the Global Financial Crisis of 2008. Back then, that “New Normal” resulted in merely an overhaul of financial systems – which now seems to have reversed its course as greed gets the better of everyone.
This time around though – it will be significantly different. And, these are possibly the 10 “New Normal” outcomes we can expect when we return to “Normal”:
1.The drift from free foreign trade and globalisation towards protectionism will accelerate.
The Trade Wars waged by Washington on the rest of the world will expand. The decline in manufacturing activity and related jobs in the West resulting from globalisation will result in the promotion of self-sufficiency in those affected nations resulting in the creation of costly inefficiencies. Lessons learnt in the 1930s whereby trade barriers reduced economic growth and spawned deflation will be repeated once again.
2. Buying habits will change as more customers turn to E-commerce for their shopping needs.
The exponential growth of E-commerce will give rise to a sharp rise in demand for logistics warehouses in inner city locations. The rapid rise of E-commerce was predicted before the pandemic but demand is expected to rise exponentially as a result of what is happening now. E-commerce is attracting millions of new customers who have never used its services before. However now, using E-commerce service is a must as consumers adapt and learn to like the conveniences attached to it. I believe that people will continue to use the service long after the Covid-19 pandemic disappears.
3. E-Learning and video conferencing will take centre stage.
The rise of Zoom, Windows Teams, Skype and other video conferencing platforms have become overnight sensations as businesses and educational institutions find new ways of ensuring continuity during the shutdowns. The move to online communication platforms has revealed the huge waste spent in business travel and classroom time that has been generated over the years.
Face-to-face interactions won’t disappear but will be reduced to the benefit of these communications’ hardware and software suppliers and will result in a much lower utilisation of airlines and hotels by businesses.
During the lockdown, I have discovered that working at home has become very acceptable as my organisation embraced video conferencing as a meeting tool. We have also discovered that we can now work in smaller offices and meetings are surprisingly more efficient and productive. Schools and universities have adapted in a very short space of time to switch their teaching and learning online – which is indeed a far cry from the traditional classroom approach. As a result of this, students in the future could study for their degrees online and obtain their qualifications from prestigious universities at a fraction of the cost.
4. The consumer will remain cautious much longer after the Coronavirus crisis subsides.
This was what happened after the 2008 financial crisis. The attitude of “use it up, wear it out, make do or do without” – may prevail for years, weighing down on consumer spending and retail sales. People under lockdown have become used to not spending as much as before.
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5. Global companies would have learnt their lesson of centralising from a single source like China.
Decentralisation of manufacturing activities can benefit countries like Malaysia where we have the skills to become a secondary source for critical parts supplies globally. I see more industries coming to our shores which will benefit our workforce.
6. Barring all-out protectionism, global supply will continue to exceed worldwide demand.
The resulting savings glut will continue to depress inflation and interest rates. The low rates of inflation and possibly, even deflation, will damp the zeal for spending – further restraining any economic recovery.
7. The plunge in crude oil prices may force the Saudis and the Russians to cooperate.
Oil prices could then recover to the USD40 (RM170.80) to USD60 (RM256.20) per barrel range but the resilient frackers may still depress oil prices with over capacity.
8. The banks that don’t embrace Fintech will find themselves out of business.
Banks will be threatened by the new Fintech companies that leverage on technology to provide superior service to borrowers. Physical money will become a thing of the past.
9. Tourism and the airline industry will consolidate.
Expect travel to become more expensive in the short term as many airlines may go bankrupt with this recession. People will also be cautious about travel until a vaccine is discovered for this virus.
They will also realise that they don’t have to travel so much and start embarking on discovering their own countries. The fear of another pandemic will also make people more cautious of travelling abroad for some time.
10. The Bear Market has arrived, and this time, it is global.
When investors finally get a sense of the depth and length of this recession, stocks will start to rebound but only probably from levels 20% to 30% below current ones.
As of the case of after the 2007-2009 Bear Market run, individual investors will be slow to return. In the longer run, stocks may well underperform the economy as the elevated price-to-earnings ratios of the last three decades return to more normal levels, if they are not undershot.
Before “The New Normal” arrives, we need to flatten another curve (apart from the pandemic induced curve) – and that is, the exponential growth curve of our population, consumption, pollution and generation of greenhouse gasses, all of which have been non-linear since the Industrial Revolution.
Covid-19 has sent the world a chilling message that unless we act now, we are doomed. This has been a humbling experience for some including the most powerful nations on earth as their economies have become disrupted and all the missiles and money in the world cannot save them.
There must be a realisation that all of mankind need to preserve this planet for our children, to hit the reset button and come back to a world of more moderate and sustainable growth. That curve needs flattening or the people of the world will be inviting another pandemic upon themselves.
*Information and opinions expressed in this article are accurate at the time of the article.
