How coronavirus pandemic will impact economies

Thursday March 12 2020

Virus

South Korean soldiers wearing protective gear spray disinfectant on the street to help prevent the spread of the COVID-19 coronavirus, in Seoul on March 6, 2020. According to the World Health Organization, the disease has spread to 114 countries so far. PHOTO | FILE | AFP 

By Business Daily

As the coronavirus pandemic ravages the globe after it emerged in China just a few months ago, day-to-day life for millions of people has changed.

Latest data, according to an AFP tally, indicates that there are now more than 124,000 infections across the world with 4,500 deaths.

According to the World Health Organization, the disease has spread to 114 countries so far. Of these, seven are in sub-Saharan Africa with DR Congo being the latest country to confirm a case.

As oil prices plunge and financial markets take a tumble, McKinsey & Company -- an American business strategy and consulting firm -- has released a report predicting the likely impact the pandemic will have on economies and businesses.

According to its research, there will be three likely scenarios: quick recovery, a global slowdown and a pandemic-driven recession.

QUICK RECOVERY

Advertisement

In this scenario, McKinsey & Co reckons that if COVID -19 is to be considered a seasonal illness just like the flu, which it closely resembles, the effects will be magnified at some point and then minimise later on.

This will only happen if other countries are as moderately successful as China has been so far as far in containing the rise in cases within its borders.

In this scenario, even as the virus spreads rapidly, most people outside the transmission hotspots continue with their normal daily lives.

If this happens, McKinsey sees global GDP growth for 2020 falling from the previous estimate of about 2.5 per cent to about 2.0 per cent.

"The US economy recovers by the end of Q1. By that point, China resumes most of its factory output; but consumer confidence there does not fully recover until end Q2. These are estimates, based on a particular scenario. They should not be considered predictions," McKinsey cautions.

GLOBAL SLOWDOWN

In this scenario, most countries will fail to achieve the level of control China has.

"This scenario sees some spread in Africa, India, and other densely populated areas, but the transmissibility of the virus declines naturally with the northern hemisphere spring," McKinsey says.

This scenario sees much greater shifts in people’s daily behaviors. This reaction lasts for six to eight weeks in towns and cities with active transmission, and three to four weeks in neighboring towns."

In this case, projected global GDP growth for 2020 is cut in half, to between 1 per cent and 1.5 per cent, leading to an economic slowdown, but not a recession.

This would affect small and mid-size companies harder, especially those that rely on China.

Certain sectors, especial tourism and aviation, will suffer the most.

RECESSION

This is the worst case scenario. It assumes that coronavirus is not a seasonal illness, meaning that it's here to stay.

This will mean that businesses will remain down throughout the year and result in a recession with noticeable overwhelmed health systems.

"This scenario results in a recession, with global growth in 2020 falling to between –1.5 percent and 0.5 percent."

It adds: “In consumer goods, the steep drop in consumer demand will likely mean delayed demand. This has implications for the many consumer companies and their suppliers that operate on thin working capital margins.”

WHAT COMPANIES CAN DO

Here is McKinsey's advice on the steps companies can take to protect themselves and their staff.

1. Follow guidelines issued by World Health Organization WHO) and local authorities.

2. Communicate with employees frequently about the illness.

3. Curb non-essential travel.

4. Minimise meetings.

5. Provide information on triggers, progress and threat map.

6. Come up with contingency plans.

7. Stabilise supply chain.

8. Stay close to customers.

9. Define activation protocol for different phases.

Advertisement