James Pomeroy, Global Economist, HSBC
Pandemic hastens digital economy
Coronavirus has made the world more digital, prompting millions of us to work remotely, buy groceries online and stay in touch with family via video.
Some of these changes could be permanent – with long-term implications for societies, economies and governments worldwide.
Digital consumption was already rising before the crisis, driven by gradual shifts in consumer tastes, demographic change and new technologies. The pandemic has accelerated that trend.
Young people use more digital goods and services than older generations. About 22 per cent of developed-world workers were born after 1990, and are ‘digital natives’ who have grown up surrounded by technology. This proportion could reach 43 per cent by 2030.
Even if nobody changes their personal habits, we think changing global demographics mean the share of economic activity done digitally will probably double over the next decade.
If demand for digital services continues to rise, governments will need to invest in infrastructure and upgrade existing systems – especially in countries where a paucity of devices or slow internet speeds limit digital services.
While mobile-phone adoption has risen sharply in emerging countries, most lag developed nations’ standards of broadband or internet devices suitable for home teleworking. South Korea and Norway are well connected, India and Indonesia less so.
All this could cause significant disruption to lifestyles and have huge economic implications – some positive, some negative.
Potential changes include a further increase in online purchasing. Some 10-30 per cent of retail sales are currently online in most developed countries, with double-digit growth over the past year. We estimate that about half of goods consumption could be online in many developed markets by 2030.
Working from home, at least part-time, may become the norm, which could lead to truly flexible working. Increased productivity might mean shorter working weeks. With less time wasted commuting or queuing, we can spend more time socialising and on leisure.
But what form will this take? People turned to technology for entertainment alternatives to cinemas, sporting events and concerts during the pandemic. Virtual reality facilitates games and meetings and permits us to ‘experience’ travel without leaving home. Many patients, meanwhile, have become used to internet medical consultations.
Cash payments shrank during the pandemic. Ultimately this may lead to faster adoption of bank accounts and mobile money in many countries. A more digital economy should lower costs for businesses and improve price transparency, depressing inflation.
But measuring the economy may be harder. Some digital transactions are harder to track than physical ones and as goods become services – streaming music instead of buying CDs – industrial production and goods-trade data will be less valuable measures of activity.
The further digitalisation of the economy will also have implications for jobs. More businesses will invest in automation – cutting costs and helping social distancing. Falling prices of industrial robots could see their use increase fourfold by 2030. Automation could threaten jobs and reduce wage growth for low-skilled workers.
Inequality could thus widen. Policies such as universal basic income may be more widely discussed while proposals such as higher taxes on tech companies may provoke international disputes. And the risks associated with data security and cybercrime will grow.
Policymakers must be prepared for new challenges as the world becomes increasingly digital.
- Disclosure and disclaimer
The following analyst(s), economist(s), or strategist(s) who is(are) primarily responsible for this report, including any analyst(s) whose name(s) appear(s) as author of an individual section or sections of the report and any analyst(s) named as the covering analyst(s) of a subsidiary company in a sum-of-the-parts valuation certifies(y) that the opinion(s) on the subject security(ies) or issuer(s), any views or forecasts expressed in the section(s) of which such individual(s) is(are) named as author(s), and any other views or forecasts expressed herein, including any views expressed on the back page of the research report, accurately reflect their personal view(s) and that no part of their compensation was, is or will be directly or indirectly related to the specific recommendation(s) or views contained in this research report: James Pomeroy
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