What happens when people buy less?
Austerity, living with few or no luxuries and comforts, is a puritan way of life good for nirvana. But for an economy driven by consumption, it is disastrous when people demand less and spend lesser.
The persisting Covid-19 pandemic and harsh restrictions to tame it limited people's ability and scope to spend last year. As businesses started overcoming the shocks of the first wave, a fresh blow came earlier this year, bringing stricter curbs back in force.
Businesses reopened on 11 August after rounds of restrictions since April 5, but their wait for customers is getting longer.
A fashion store owner of Khulna's Abdul Jalil Market told The Business Standard of his decision to quit the business. The clothing store reopened after the lockdown was withdrawn, but customers' turnout was too low to sustain his business.
Buying a new mobile phone is not in people's priority list now, a mobile shop salesman told the TBS team in Satkhira town.
A shoe store owner in Satkhira district town, a women chamber leader in Jashore district and a computer market association leader in Khulna --- all shared the same frustrations about business. Many are indebted.
When businesses stop, banks are at risk of not getting back the money they lent. Bankers are worried about how big the number of default loans will be in coming months.
Banks are having a pile-up of deposits too. Consumers in Bangladesh socked Tk1.65 lakh crore in 2020, the highest in the last five years.
Current deposits — unspent disposable incomes of people with regular earnings -- mostly contributed to higher savings.
Yes, only for those few fortunate ones whose income did not fall even during the pandemic. Rather their expenditures declined during lockdowns, helping them save disposable income in banks.
The reality was quite opposite for marginal people, whose incomes dwindled during the pandemic and who exhausted whatever savings they held in deposit schemes to buy food and daily expenses, an analysis of bank data reveals.
Banks have no reasons to be happy with their vaults stuffed with deposits, when demand for loan shrinks.
Deposit growth in banks does not help an economy unless the money is invested and put into circulation. Household savings have no meaning to businesses which are running dry.
For an economy, every footfall in shopping malls counts. When footfall drops, recovery slows.
That is why concerns are growing in major economies.
America, Europe and China are growing more slowly than investors had hoped. The Delta variant, by contrast, looks like a stagflationary force that saps growth less dramatically but sends inflation up, The Economist writes in an article in its current issue.
In China, which emerged from the shocks of the first wave of Covid-19 at a pace faster than the West on the back of "revenge spending," upmarket sales are falling now. Fresh wave of infection slowed retail sales, and hints of crackdown on some high-end technology trade sectors may dent luxury purchases.
Chinese consumers are a major driver of global sales of high-end products. If demand from big Chinese spenders evaporates, top global brands of luxury products will feel the pinch.
Chinese travelers account for a major part of tourism revenues both local and worldwide. Fresh restrictions on travel were enforced in August amid spread of the delta variant, which is feared to slow China's recovery from the pandemic.
Consumer spending that accounts for two-thirds of US economy financial exercise and drove 6.5% second quarter output development – slowed markedly as the third quarter kicked off. 'Core' US retail gross sales that exclude meals, vitality, autos and constructing supplies dropped a surprisingly massive 1.0% in July, says a Reuters news.
The US government pumped billions of dollars as handouts to individuals, whose unspent money led to a household savings build-up throughout pandemic lockdowns. As virus curbs started easing and businesses reopened on the back of rapid vaccination, people loosened their grip on purses, giving a fresh life to the economy in the first quarter.
That "enforced" savings appears to be mostly spent already, reinforcing fears that the development rebound from the Covid-19 shock is already waning with new variants causing further disruption.
Consumer prices are rising uncomfortably fast in major economies including the USA as lockdowns have troubled supplies. Even the euro area saw its highest inflation in a decade in August.
The spread of the Delta variant is weighing on consumer spending in the rich world, even in countries with higher vaccination rate.
Economies are desperate to spur consumptions. Europe's service sector has reopened amid its Delta wave.
Bangladesh's economy also showed signs of recovery with businesses reopened and life coming back towards normalcy. Surveys showed earnings in the informal sector workers, worst hit by the pandemic during the first wave in 2020, started recovering until the latest wave of deadlier strain broke out in March this year.
Consumers were returning to shops. But the post-first wave boomlet has fizzled out as a fresh wave has made people more cautious about spending on less-needed items.
There is no official consumption data available, but there are indications that people are not buying much other than essentials.
A visit to the city's shopping areas tells the true picture. Shops reopened in mid-August after a series of lockdowns since April, but customers' visit is low and traffic congestions in Dhaka's shopping zones is less.
Brands like Apex Shoe are extending the offers of special discounts (as high as 60%) to draw more customers since outlets reopened on 11 August. Highway eateries are not having diners in droves as long-haul buses, which take a break at wayside restaurants, are having less-than-usual passengers.
Resorts in tourist hubs are less occupied, and big name hotels are offering high discounts to attract guests.
Inflation data showed that non-food items saw a decline in price index, which gives an indication that people are more focused on food items and less enthusiastic about non-essentials.
A rise in bank deposits also suffices the austere consumption pattern.
In Bangladesh, we are to depend on CPI to get a pulse on consumer behavior, as there is no quarterly data and official data on household income and expenditure are released with several years' interval.
"Inflation index also indirectly tells about spending patterns. When prices go up, spending becomes less. If spending declines, then business slows," says Dr Salehuddin Ahmed, former governor of Bangladesh Bank.
"There are indications that spending has declined. Bank deposits have gone up despite low deposit rates. It reflects that people are spending less," he said.
Food inflation marked a jump year-on-year in the last fiscal that ended in June, mirroring the increase in prices of major food items including rice as low-earners spend more than half of their incomes on food. Non-food index showed a decline, which indicates that people spent less on non-food items, causing a significant fall in demand leading to decline in inflation.
Riddled by the fresh surge of virus, India is hoping to see a surge in consumer spending in the first half of the year.
What is the forecast for Bangladesh?
Again, there is no official data. But independent think tank Sanem released a survey this week forecasting business confidence will go up in this quarter.
Global rating agency S&P sees solid growth prospects for Bangladesh and predicts 7% GDP growth in fiscal 2022.
Shopkeepers are waiting eagerly for customers, and Bangladesh's economy is waiting to see a rebound.