Exiting the Covid-19 ravine

05 June 2020

As governments around the world increase their lockdown relaxations, and epi-curves no longer have a relentless upward trajectory, how soon will economic activity pick up? Hotels, restaurants small businesses and luxury shops may have the answers, reports Clarissa Dann

Is it a V-shape, is it a U, a ‘swoosh’ or just one long underground tunnel? As economies prepare for life after lockdown, what shape are the green shoots of recovery taking and where are the clues to how quickly they will bloom?

“Normalisation will be complex and considerable uncertainty remains about how this process plays out,” reflected Deutsche Bank’s Chief US Economist Matthew Luzzetti back on 24 April (A less than grand re-opening). Although his remarks referred to the US, they have a certain resonance outside America. “Our analysis yields one main conclusion: the return of economic activity is likely to be gradual. We find that a recovery of only about 40% of lost output or employment is likely to occur by year-end.”

Matthew_Luzzetti“The return of economic activity is likely to be gradual”
Matthew Luzzetti, Chief US Economist, Deutsche Bank

Financial assets performances

Turning to the financial markets, on 1 June, Deutsche Bank Strategist Jim Reid and Analyst Henry Allen noted May’s strong performance for risk assets (see Figure 1) as the global growth rate of Covid-19 cases continued to slow, “offering hope that the worst of the pandemic may have passed”. Furthermore, they added, as countries throughout the developed world moved to ease their lockdown restrictions, “data showed that economic activity might be starting to gradually pick up again, which further helped to boost investor sentiment”. A total of 32/38 of the non-currency assets in their sample had a positive return over the month, “meaning that 12/38 are now positive on a YTD basis too”.

Figure 1: Total return performance of major global financial assets in May (in US$)

Source: Deutsche Bank, Bloomberg Finance LP, Mark-It

Consumer confidence

However, when it comes to Covid-19 economic forecasts, monthly or quarterly data on economic activity have an inevitable time lag before the full picture is clear. In response to the need for real-time measures, other indicators of movement and consumption have started to attract some attention and this article reviews a sample of these. On 30 April, our flow article Consumer caution and Covid-19 made the point that “Consumer spending drives almost 70% of US GDP and as each economy plans its lockdown exit, households are saving more, and prioritising home essentials over luxuries”. Our analysts have therefore been paying particular attention to indicators that suggest something of a ‘toe in the water’ for discretionary expenditure.

There have been some encouraging signs. Analysts note in Covid-19 impact tracker: Road to recovery begins with a single step (28 May), mortgage purchase applications have rebounded to pre-pandemic levels – suggesting longer term confidence in the US. Motor gasoline demand and other travel-related gauges have also continued to improve, “indicating increased mobility as stay-at-home orders are relaxed and state economies begin to reopen”. Retail sales had picked up from the previous week “and steel production seems to be at its nadir”. In addition, they discern “a reasonably strong relationship between a pick-up in mobility since reopening and a decline in initial jobless claims”.

Openness frontrunners

Figure 2: The largest step toward global reopening since the pandemic started (week ending 23 May)

Source: Deutsche Bank, Apple Mobility Trends Reports, Google COVID-19 Community Mobility Reports, Oxford COVID-19 Government Response Tracker

When it comes to opening up, New Zealand has leapt to the very top of the G10 leader board. This, says Deutsche Bank FX Strategist Robin Winkler, “owes itself to both significant easing of official lockdown measures and normalisation in actual activity as measured by phone mobility”. He continues, “It's the cleanest and best synchronised reopening we've seen so far.” See Figure 2.

Hot on New Zealand’s heels is Sweden, which had devolved collective responsibility for containing the virus to its people rather than imposing full lockdown, attracting varying degrees of criticism. On 16 May, The Economist’sHerd on the street’ focus on the country reported on how Sweden chose this path “because it looked at the longer term.” On 8 May the Financial Times had noted “Sweden’s approach has been to have a strategy that could last for months, if not years, without the need for big changes. That contrasts with nearly all other European countries, which are grappling with how to reopen their societies without sparking an increase in transmission.”1

Through flow’s series of Covid-19 articles, our researchers have pointed to the relationship between lockdown, virus containment, tracking and tracing and mitigation of Covid-19’s economic impact. “The damage done by the economics of stoppage arising from lockdowns is just too enormous for more than a short-term response,” they said in Moving out of Covid-19 (15 May). The countries with bands of green to the right of Figure 2 have either got there by locking down early, so coming out of lockdown ahead of others, taking a decision not to lock down as fast as other countries, or have highly sophisticated test, track and trace infrastructures in place. Where they will be in terms of economic strength in 12 months’ time remains to be seen given the various warnings about second, third and subsequent waves of infection.

Movement of people

At pains to point out that Google “adheres to stringent privacy protocols and policies” on 3 April 2020 the tech giant started publishing its mobility data, based on anonymised aggregated feeds via Google Maps to “to chart movement trends over time by geography, across different high-level categories of places such as retail and recreation, groceries and pharmacies, parks, transit stations, workplaces, and residential”.2

For example, one can download a particular country and then view whether there have been more or fewer people across the listed place categories since the beginning of the reporting. These capture mobility trends for places such as:

  • Local parks, national parks, public beaches, marinas, dog parks, plazas, and public gardens;
  • Public transport hubs such as subway, bus, and train stations;
  • Restaurants, cafes, shopping centres, theme parks, museums, libraries, and movie theatres;
  • Places of residence; and
  • Workplaces.

It is then possible to compare countries across each of these places. Below are five examples of how far from the baseline position those countries are for Retail and Recreation:

  • Germany: -55%
  • Sweden: -21%
  • United States: -22%
  • Italy: -37%
  • South Korea: -5%

In the flow article, Covid-19: the economy after Wuhan, we noted how the South Korean government had promptly implemented containment measures to reduce transmission, and thus largely avoided restricting the movement of people. This policy is showing up in the Google data, with the Retail and Recreation data only 5% away from baseline.

As the Federal Reserve of Dallas (Dallas Fed) explains,3 a key driver of the economic slowdown was an increase in social distance – literally, the physical distance between people – in order to mitigate the spread of Covid-19. “ It highlights how “many businesses sharply curtailed, or even ceased, operations due to government-mandated closures, concern for the health of workers or a lack of business, as consumers avoided social interaction”. For this reason the regional central bank has developed its Dallas Fed Social Distancing Index, based on geolocation data collected from a large sample of mobile devices.

Deutsche Bank analysts combined Apple data, which “takes the average of driving, walking and transit inquiries again relative to a pre-virus baseline” with the Google data and the Dallas Fed data on social distancing (the point being that decreased social distancing is associated with greater mobility).

Figure 3: Various measures of mobility/social distancing show that economy is very gradually reopening

Source: Google, Apple, FRB Dallas, Haver Analytics, Deutsche Bank 
When combined (See Figure 3), they conclude “the US as a whole is past the trough in mobility or, symmetrically, past the peak for social distancing measures”. However, the caveat is that “all measures also remain well off of their pre-virus levels, on the order of about -30 to -60%, suggesting that people are not choosing to immediately return to normal patterns of mobility immediately upon states reopening”.


Waitress with a mask and clients at an outdoor bar, café or restaurant, reopen after quarantine restrictions

Figure 4: OpenTable restaurant datasets: Germany leads

Source: Opentable.com: The state of the restaurant industry

Restaurants are among the hardest hit businesses"

OpenTable, the online restaurant tool that has, according to its website, connected more than two billion diners with around 60,000 restaurants around the world has set up a range data analysis and support initiative to help the industry through Covid-19. “Restaurants are among the hardest-hit businesses,” it says. “Many have been forced to close, laying off around three million employees in the process. Others have remained open, following rapidly changing local regulations surrounding delivery and take-out.” Germany is a notable example, “Most restaurants, cafes, and beer gardens are now opened. While most share the same hygiene measures (e.g. maintaining a distance of 1.5 meters for guests who are not together), they have different rules,” note Deutsche Bank’s Jim Reid and Marion Laboure in The House View (26 May). Note, however that 31 May and 1 June have the double halo of being the first weekend after restrictions eased and it being a bank holiday weekend. The statistics for but the stats for 2 and 3 June are not as remarkable an improvement, although the trend is still positive.

Support from OpenTable to its community includes the creation of pre-pay vouchers and gift card purchase schemes redeemable at a future date and consistent communication with pre-Covid customers.

The OpenTable datasets count year-over-year seated diners at restaurants on its network across all channels: online reservations, phone reservations and walk-ins. For year-on-year comparisons by day, they compare to the same day of the week from the same week in the previous year. Figure 4 shows how Germany has moved out of a negative position for the first time.

Deutsche Bank analysis across the US of seated diners at restaurants (see Figure 5) indicates that the US as a whole is still down more than 80% relative to pre-virus levels as at 25 May, with many states still in total shutdown.

Figure 5: Change in OpenTable seated diners at restaurants

Source: OpenTable, Haver Analytics, Deutsche Bank

Australian restauranteur Duncan Welgemoed, who had shifted his business model to take-away to stay afloat during Covid-19, commented in The Guardian (19 May) “The added stress of an impending recession due to less disposable income, public hesitancy to gather in confined places and future waves of Covid-19 makes this the hardest thing I’ve ever had to deal with in my professional career.” He believes the industry’s existing business model will need to be rethought. “Why do people eat in restaurants? It’s not about eating, it’s about the social interaction, the atmosphere – it’s dinner and a show.” The show will go on - but on a rather different stage.4


Figure 6: Hotel revenue per available room ticking up

Source: Smith Travel Research, Deutsche Bank 

-89.2% to €8.58
Fall of revenue per available European hotel room in April 2020 on a year ago
Source: Smith Travel Research

Smith Travel Research (STR) provides a data benchmarking, analytics and marketplace insights service for the global hospitality sectors and reported “unprecedented performance lows during April 2020” for Europe.5 That month,

  • Occupancy fell by -84.6% to 11.1%
  • Average daily rate for what was occupied fell by -30.1% to €77.2
  • Revenue per available room fell by -89.2% to €8.58

In the US (see Figure 6) after the plunge in revenues per room of almost 90%, there is a small uptick as at 20 May. However, the picture is rather different in China. According to Hotelmize’s data, reported Traveldailymedia.com on 30 April, hotel rates dropped by 300% in January and February when the government imposed the lockdown, but the hotels are starting going back to its normal operations following the shutdown. “Mainland China’s daily hotel occupancy reached an absolute level of 31.8% on 28 March, up from a low of 7.4% during the first week of February, according to preliminary data from STR. Hotels are also giving out discounts to encourage people to book.”

Closed businesses slowly reopening

Other important indicators, notes Luzzetti, are the metrics related to small business re-openings, hours worked and income losses related to Covid-19 disruptions. Using data from US scheduling and time tracking tool Homebase6  – they report that around 30% of US small businesses have not reopened relative to the pre-virus universe – an improvement on the mid-April position when half of them remained closed (see Figure 7).

Figure 7: Some US businesses have reopened, though closures remain widespread across industries

Source: Homebase, Haver Analytics, Deutsche Bank
“However, hours worked continue to lag, consistent with businesses reopening but at less than full capacity,” adds Luzzetti. “In particular, hours worked by hourly employees is still down about 40% relative to the pre-shock level, up from a low of about -60% (see Figure 8).

Figure 8: Hours worked remain more depressed

Source: Homebase, Haver Analytics, Deutsche Bank

Shopping habits

View of entrance of Gucci shop in Galleria Vittorio Emanuele II, Milan. Italy reopens everything after more than two months of nationwide lockdown
With European luxury companies hit by the staggered lockdowns worldwide Deutsche Bank Research analysts are monitoring “whether the staggered reopening is leading to a cautious return of consumers to stores or to revenge spending”. Deutsche Bank Data Innovation Group (dbDIG) qualitative research data, based on a global survey of 4000 retail consumers across eight major economies,7 suggests that the initial return to spending remains cautious across the board at the moment. These were the main findings:

  • Asia is are ahead in the path to normalisation with China and South Korea showing more optimism;
  • Spending on clothes, shoes, and sporting goods are perceived to be improving, particularly in China, while trends on perceived spend are more static for luxury goods;
  • Health and fitness is becoming more important across the countries surveyed;
  • Online participation is rising, with the largest increases in the UK and South Korea (and with companies data showing a growing broad-based acceptance of online as a preferred shopping channel, with triple-digit growth rates indicated by a few brands during Q1 results calls).

Figure 9: Luxury Shopping in Europe: Germany Ahead, France, and Italy starting to revive

Source: Geolocation Data Activity Index by dbDIG Primary Research Group, Deutsche Bank.
A closer look at the appetite for luxury goods spending in Europe revealed that Germany is leading the broad European shopping activity recovery and France has started to improve after restrictions were eased in mid-May. Italy is showing an even-steeper move having caught up with France despite starting to recover with a lag of one week. “Italy and France are important luxury markets in Europe with an engaged local clientele, despite on average 50% of the business is generated with tourists,” note the analysts. They add, “The UK, another important luxury market, is still in lockdown and is obviously showing a flat line.”

Some way off

In summary, just as we said on 27 March, there is some light at the end of the Covid-19 tunnel, but although this is brighter than it was two months ago, there is still a lot more track to cover before we emerge from the dark. And the world we emerge into will look very different from the one we left.

Summary of Deutsche Bank reports referenced

Early Morning Reid: May 2020 Performance Review (1 June 2020) by Jim Reid andHenry Allen

Global Retail: Industry Update (2 June 2020) by Paul Trussell, Francesca Di Pasquantonio, Simon Carter, Derek Johnston, Tiffany Kanaga, and Jaina Mistry

US Economic Perspectives: A status check on reopening: A lot further to go despite progress (28 May 2020) by Matthew Luzzetti, Brett Ryan, Justin Weidner and Suvir Ranjan

FX Daily: Look at those kiwis (28 May 2020) by Robin Winkler


1 See https://on.ft.com/2Y43pSF at ft.com
2 See https://bit.ly/371VKZ1 at google.com
3 See https://bit.ly/3gTc9DD at dallasfed.org
4 See https://bit.ly/3ePYueF at theguardian.com
5 See https://bit.ly/2MvDHB8 at str.com
6 See https://bit.ly/2Y2wL3A at joinhomebase.com
7 See dbDIG countries surveyed are the big five European economies, with a separate survey in the US, China and South Korea

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