The pandemic temporarily imposed new patterns of consumption, savings and investments, leading to both negative and positive consequences on growth and the economic situation in general. Some important questions arise here, not least being how to take advantage of such change and harness it to serve growth in the post-COVID-19 period. More so, as economic activity is gradually returning to normal.
One of the most important from an economic perspective is the future relationship between savings and consumption. It is known that the culture of consumption in the Gulf veers towards high spending, and often not taking into account the individual’s financial circumstances. The mindset seems to be to “spend what’s in the pocket” and the unseen will be dealt with later.
Such a perspective is no longer valid in the present, not only because of the repercussions from coronavirus, but also due to structural changes in GCC economies and the global economy in general. Oil revenues, which account for 80-90 per cent of annual budgetary income, will be subjected to severe shocks and fluctuations that will affect growth.
Also, technological changes such as those set off by artificial intelligence will lead to significant decline in employment opportunities in public and private sectors alike.
Seismic transitions ahead
These in turn will require a revision in many practices, including patterns governing the savings-consumption relationship. This is because the GCC’s culture of consumption will not work in future and will have painful consequences for individuals if they do not reconsider their spending ways. At the state level, the GCC countries have made significant progress towards creating the right sort of linkages within these economies, including making a case for faster financial reforms.
The pandemic provided sizable section of the population with big savings, particularly government employees whose salaries have not seen cuts. They also received state subsidies in the form of a reduction in service fees, such as those for electricity and water. During the lockdown phase, household spending had declined significantly, contributing to increasing savings.
Make them spend right
So, how can individuals be made to dip into savings that have accumulated in recent months? Will it define a new and proper relationship between savings and consumption? Or will people revert to their old ways? Unfortunately, with the gradual reopening of the economy, there are signs of consumers having reverted to some patterns of extravagant consumption.
Sure, consumption is an important and required economic factor. It is a major driver of economic activity, but what we are discussing is related to extravagant spending, which does not take into consideration the needed equilibrium between consumption, savings and investment. The latter two are as crucial for sustained economic growth.
There is national interest at stake, as represented in savings contributing to increasing liquidity to stimulate the local economy. The GCC countries have injected $300 billion in support of economic sectors, which helped save many establishments from imminent collapse.
It is thus important the wider community engage in the right spend patterns, while also taking advantage of the liquidity available in the past period. This will contribute to the revitalization of sectors thanks to the right sort of consumption boost.
Creating a durable equation between saving and consumption is one of the difficult tasks facing GCC societies post-pandemic. This can be done by reviewing the culture of consumption itself, an opportunity available thanks to the increased awareness among Gulf citizens.
- Mohammed Al Asoomi is specialist in energy and Gulf economic affairs.