During this summer, we all can get together again, meet in restaurants, venues, go traveling, go to sports and music events – it’s almost like it has never been any different. Everything is normal again, after two summers of restrictions and anxiety. Everybody is happy that we can do all this again: ‘back to normal’, as they say.
But what is back to normal? Back to the exact same situation as before the COVID pandemic? Or has normal changed to a ‘new normal’? And what are the consequences of that?
In economic and financial terms, there is indeed a new normal. After the pandemic eased, and restrictions were loosened, across the world, economies started to speed up again. For example, when in lockdown, companies saw their businesses shrink and had to let go of staff, sometimes a large chunk of their employees. Now that everything is open again, the new situation has led to growth levels where, very soon staff shortages have appeared in all kinds of sectors, from restaurants to construction to healthcare to airport services, even among journalists. These labor shortages are starting to pinch, and may hamper economic growth in the coming quarters. We have not returned to normal, we sped past the former normal.
New Normal Comes with New Problems
On top of that, inflation rose even faster due to the war in Ukraine, leading to even higher energy prices, that were rising on the waves of higher demand. To tackle that, the central banks are raising interest rates; the Fed, European Central Bank, Bank of England, Bank of Canada, all have hiked rates, and in all cases, more are expected to follow. This is your new normal. And it affects all aspects of investing and financial household.
Not too long ago, the very low interest rates seemed to last almost endlessly, and people had adapted their financials choices to that. Quite suddenly, that has changed. Your mortgage might become more expensive, whether you are extending your mortgage, or when you plan to buy a house. For businesses, big or small, loans will become more expensive. That may limit their financial leeway, which could mean that their original investment plans to grow their business are no longer feasible. All in all, economic growth can slow down so quickly that we might find ourselves on the brink of a recession – and people have already started talking about that.
Be Prepared to Adapt
An important lesson for when an intense shift happens: be prepared to adapt to a different reality than the one that preceded it. Returning to normal does not always mean returning to the normal you knew, but to a situation that in the past could have looked improbable, in fact, one that is facing you today.
Whatever the normal that we return to may be, the period of time that the abnormal lasted has taught us some financial things to remember:
- Build some financial reserve to weather through difficult times with possible limited income, and keep in mind that this limited income could last a while.
- Reconsider your debt position. Paying off mortgage is a continuing obligation, even while your income may be interrupted during difficult times. Be aware of ongoing financial obligations that are based on a ‘normal’ income, and that stay in place during abnormal times. Cutting out some of those obligations when things are ‘normal’ will save you a possible problem when the situation changes.
