COVID-19 and the initial business impact
Insights from the McKinsey Global Survey and McCann Worldgroup Truth Central
S“Just 31% of people globally say their country is prepared to deal with the coronavirus outbreak. People in India (55%) and Turkey (51%) are most likely to say their country is prepared,” according to “Human Truths in a Time of Coronavirus: Part 1”. The new study, recently by McCann Worldgroup’s global intelligence unit – McCann Worldgroup Truth Central - explores global and generational attitudes regarding the COVID-19 pandemic. (Report link)
“Only 14% of people globally believe that their government is ‘very prepared’ to deal with the coronavirus outbreak. In Japan this is just 5%, in the UK it is just 6% and in America, it’s fewer than 1 in 10 (11%).”
Obviously this data must have been collected sometime back when COVID-19 was about to hit the second most populated country. As of now(1/4/2020 7:12 PM) India has 1637 confirmed cases and 133 has recovered. According to Livemint, “In the sharpest spurt since lockdown started, Maharashtra notched a staggering 302 COVID-19 positive cases with the highest number from Mumbai.” I am sure the perception might be slightly different especially after the mass exodus of migrants the country witnessed.
“We have to go to our village -- we will starve here,” said Rekha Devi as she walked with her husband and two young children down a highway outside of Delhi, heading to see her family some 370 kilometers (270 miles) away. The couple lived on the construction site where they worked, but the job stopped suddenly more than a week ago.
The initial business impact
In early March, most respondents expected the spread of the coronavirus to be one of the biggest risks to growth for the global economy, their national economies, and their organizations in the months ahead. “86% of respondents said the outbreak is a pressing threat to global economic growth over the next year. Concern about the pandemic, which we first asked about in this quarter’s survey, was most pronounced in the Asia–Pacific region, where 96% of respondents said it was a top threat.” These findings are part of the Economic Conditions Snapshot, March 2020: McKinsey Global Survey.
The coronavirus outbreak, a new risk, dominated the list of most-cited threats to global economic growth. The coronavirus outbreak displaced trade conflicts, respondents’ chief concern throughout 2019, as the most commonly cited risk. Although trade conflicts became the third-most-cited risk overall—after the virus and geopolitical instability—they were an outsize concern in India and other developing markets.
The report also highlights that respondents in developed economies were more likely than those in emerging ones to expect worsening conditions. Those in Asia–Pacific and Europe expressed the most pessimism. Respondents in India and Latin America—who were less likely than those elsewhere to see the virus outbreak as a risk to their economies were less somber. These sentiments were consistent with the timing and spread of the virus. However, with the growing number of cases in India will definitely have a different tale to tell by the end of April 2020.
The negative impact of COVID-19 on business has brought some early signs for regional growth. 87% of respondents said their companies will alter-globalization strategies in the next three years. Respondents were more likely than they were in December to say that the strategic changes at their companies will include diversifying supply chains across countries and sourcing more from regional supply chains.
World economy to go in a recession
The world economy will go into recession due to the coronavirus pandemic, with the exception of India and China, according to the latest United Nations trade report.
“Even so, the world economy will go into recession this year with a predicted loss of global income in trillions of dollars. This will spell serious trouble for developing countries, with the likely exception of China and the possible exception of India," UNCTAD said. The report, however, did not give a detailed explanation as to why and how India and China will be the exceptions.”
Moody’s Investors Service also slashed India’s economic growth projection for 2020 from 5.3% to 2.5%, as the COVID-19 outbreak caused an unprecedented shock to the global economy. Crisil Ltd also slashed its growth projection for India for 2020-21 to 3.5% from 5.2% earlier because of the nationwide lockdown and decline in discretionary spending. The rating agency said the measures will aggravate the downturn in the April-June quarter, and the sharp slowdown in key trading-partner economies will lead to a slump in exports.
“Advanced economies are seen contracting 2% in 2020 against 1.7% growth in 2019 while emerging economies will slow to 1.9% from 4.2%. China is forecast to grow 3.3% in 2020 against 6.1% in the previous year.”
In India, GDP growth is already at a decadal low and any further dent in economic output will bring more pain to workers who have seen their wages erode in recent times.
According to the McCann Worldgroup Truth Central’s report - 48% of people the economy will suffer and 21% fear job loss or financial instability. “People in the United States (56%), Canada (54%), and Japan (54%) are most worried that the economy will suffer. Those in Argentina (53%) and the UK (52%) are most concerned that lots of people will die.”
Young people are more worried that they will lose their job or struggle financially compared to older people: “In the United States, 39% of young people (25-34) have reported concern about losing their job or struggling financially compared to 12% of older people (45-54).”
“In India, 23% of young people (25-34) are worried about losing their job or struggling financially compared to 16% of older people (45-54).”
With India halfway through the 21-day lockdown, the picture isn’t looking cheerful. In the last 24 hours, the country has witnessed 437 new Coronavirus cases and 6 deaths in India. In fact, the religious congregation in Delhi last month with links to Islamic missionary groups may infect nearly 9000 people in India. All this isn't positive news for the country that has been slightly less serious about the situation and as a result, the economy will suffer and so will businesses.
According to Ashish Bhasin, CEO APAC & Chairman India, Dentsu Aegis Network Asia Pacific things might start getting for the advertising industry around Diwali. This would heavily depend on how soon the threat of COVID-19 gets contained and how good the monsoon is for the country this year. “We must not underestimate its importance in a rural economy as ours,” he quips.
These numbers and perceptions will change with every passing day and month. The future looks bleak. But at the same time, 2020 has emerged to be a decade that is shattering old norms and habits. For now, businesses are trying to cope with this sudden drastic change and making adjustments. On the other side, the consumer who is stationed at his home has made the move in adopting new behavior patterns. More on it in my next story.