Effects of COVID-19: Economic Fallout
I’m watching and learning from global reaction to the spread of the COVID-19 pandemic. There’s no doubt that some countries have handled it better than others. Some have also had some “nasty surprises” …
The time for “blame games” and recriminations will come later; let’s first learn from the different types of “fallout” we’ve seen. My first article was on “Social Fallout”. After that I wrote about “Supply Chain Fallout”. Travel & Tourism came next, followed by a closer look at the Garment Industry. Then Leadership & Administration, followed by IT and Security implications. Academic fallout came next, so this week is the turn of Economic fallout.
There is little doubt that the world economy is experiencing a shock that few anticipated in terms of suddenness and severity. About one in five people in the United States have lost working hours or jobs. No country has been totally immune. Some reacted faster than others and have recovered faster; others didn’t see the train coming until it hit them. Some, even if they had been able to react, couldn’t.
We’ve seen supplies of raw materials dry up due to a combination of problems in supplier countries and/or availability of cargo space on ships, aircraft and road vehicles as lockdown measures were implemented, as well as falling demand due to the lockdowns and social distancing rules imposed by many governments. Manufacturing and any other activity that involved dealing with people in close proximity was a risk. China first started seeing this as its factories came back online.
Following from this, naturally, any people-centred businesses (restaurants, tourist sites, movie theatres, stores) were hard-hit. Many may go out of business.
Landlords of buildings of affected clients started giving discounts on rent or (in the case of H&M + Adidas) saw tenants simply refuse to pay rent.
Inequalities widened, with daily workers being hardest hit by workplace closures meaning furloughs or even unemployment. Overseas workers remittances dried up as workers either didn’t work due to social distancing or didn’t head overseas, as the Philippines found out. In the case of Singapore, a massive increase in cases amongst its huge foreign labour force caused significant embarrassment for the government.
Many businesses and households have limited savings, rendering them vulnerable to a long shock. Governments found that they needed to rescue small, medium AND large businesses, or risk having no economy to restart when things finally improved. They may well be faced with continuing mass joblessness and the corresponding social costs. You can close an economy for a week, maybe two, but up to three months is asking for trouble.
Consumer spending amounts to roughly two-thirds of economic activity worldwide. However, households, judging by what has already happened, may remain risk averse and cautious in their spending. With this combination of worry and reluctance to spend, expansion will be limited.
Industry will be weaker due to significant numbers of bankruptcies (some declared, I suspect, as a protective measure against creditors?) and there will be a dearth of investment and innovation.
The global supply chains that dominated the world will be unpicked as people realise that these were partly the cause of a lack of protective equipment and vaccines. The manufacture of “vital” and “strategic” goods will probably be re-onshored or fragmented, even if this means a loss in economies of scale and higher prices.
The use of data and IT services will grow. The Philippines is seeing increased interest in “online only” banking and payment services. Coupled with a surge in delivery services and e-commerce, the traditional “High Street” and out-of-town hypermarkets will see drastic changes.
Some predict that a consolidation of economic power into large corporations will happen. This may be the case if one is looking at economies of scale, but the downside is that they too will be subject to global lockdowns unless they can be split into smaller, independent “federal” units that vertically integrate R&D, production and delivery.
What is likely is that all of these will move faster and go further than predicted before.
Global liquidity will suffer with the drying-up of markets. Countries that can’t sell their goods (China) can’t then invest back overseas or in the local economy. Jobs won’t be created as fast in certain industries (although new ones may take their place). Interest rates may rise to attract investment, increasing the final cost of goods to consumers.
In all, the global economy will change, and things will be very different. Our question is, how do we as businesses respond?
There is little doubt that the world economy is experiencing a shock that few anticipated in terms of suddenness and severity. About one in five people in the United States have lost working hours or jobs. No country has been totally immune. Some reacted faster than others and have recovered faster; others didn’t see the train coming until it hit them. Some, even if they had been able to react, couldn’t.
We’ve seen supplies of raw materials dry up due to a combination of problems in supplier countries and/or availability of cargo space on ships, aircraft and road vehicles as lockdown measures were implemented, as well as falling demand due to the lockdowns and social distancing rules imposed by many governments. Manufacturing and any other activity that involved dealing with people in close proximity was a risk. China first started seeing this as its factories came back online.
Following from this, naturally, any people-centred businesses (restaurants, tourist sites, movie theatres, stores) were hard-hit. Many may go out of business.
Landlords of buildings of affected clients started giving discounts on rent or (in the case of H&M + Adidas) saw tenants simply refuse to pay rent.
Inequalities widened, with daily workers being hardest hit by workplace closures meaning furloughs or even unemployment. Overseas workers remittances dried up as workers either didn’t work due to social distancing or didn’t head overseas, as the Philippines found out. In the case of Singapore, a massive increase in cases amongst its huge foreign labour force caused significant embarrassment for the government.
Many businesses and households have limited savings, rendering them vulnerable to a long shock. Governments found that they needed to rescue small, medium AND large businesses, or risk having no economy to restart when things finally improved. They may well be faced with continuing mass joblessness and the corresponding social costs. You can close an economy for a week, maybe two, but up to three months is asking for trouble.
Consumer spending amounts to roughly two-thirds of economic activity worldwide. However, households, judging by what has already happened, may remain risk averse and cautious in their spending. With this combination of worry and reluctance to spend, expansion will be limited.
Industry will be weaker due to significant numbers of bankruptcies (some declared, I suspect, as a protective measure against creditors?) and there will be a dearth of investment and innovation.
The global supply chains that dominated the world will be unpicked as people realise that these were partly the cause of a lack of protective equipment and vaccines. The manufacture of “vital” and “strategic” goods will probably be re-onshored or fragmented, even if this means a loss in economies of scale and higher prices.
The use of data and IT services will grow. The Philippines is seeing increased interest in “online only” banking and payment services. Coupled with a surge in delivery services and e-commerce, the traditional “High Street” and out-of-town hypermarkets will see drastic changes.
Some predict that a consolidation of economic power into large corporations will happen. This may be the case if one is looking at economies of scale, but the downside is that they too will be subject to global lockdowns unless they can be split into smaller, independent “federal” units that vertically integrate R&D, production and delivery.
What is likely is that all of these will move faster and go further than predicted before.
Global liquidity will suffer with the drying-up of markets. Countries that can’t sell their goods (China) can’t then invest back overseas or in the local economy. Jobs won’t be created as fast in certain industries (although new ones may take their place). Interest rates may rise to attract investment, increasing the final cost of goods to consumers.
In all, the global economy will change, and things will be very different. Our question is, how do we as businesses respond?
I’ve spent more than half my life delivering change in different world markets from the most developed to “emerging” economies. With more than 20 years in international financial services around the world running different operations and lending businesses, I started my own Consultancy to provide solutions for improving performance, productivity and risk management. I work with individuals, small businesses, charities, quoted companies and academic institutions across the world. An international speaker, trainer, author and fund-raiser, I can be contacted by email. My website provides a full picture of my portfolio of services. For strategic questions that you should be asking yourself, follow me at @wkm610.
Labels: Crisis Management, Productivity, Social, Strategy
posted by William Martin @ 14:59
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