With the 3-month outlook for many industries moving from “much” to “somewhat” worse
LONDON, Aug. 6, 2020 /PRNewswire/ — Economic recoveries from crises such as the covid-19 pandemic come in many shapes. The hope everywhere is always that they will be V-shaped, but Us are the next best thing. Volatile Ws and the dreaded L are the worst-case scenarios. The latest Global Business Barometer, based on a survey and analysis conducted by The Economist Intelligence Unit and supported by SAS, shows that as of late June the possibility of U-shaped recovery remains possible.
Ticking closer to positive: The overall barometer reading for the global economy reached -16.8, the closest it has been to positive territory yet. Respondents in Latin America and the Asia Pacific led the way, with +18.5 and +4.0 improvements respectively. Sentiment about the global and regional economies in North America barely budged from the previous barometer, rising by +1.5 and +0.2 points, making it the most pessimistic on both accounts.
China, the first economy to turn positive: The three-month outlook for the Chinese economy among China-based executives tipped into “somewhat better” in June, though only just at +2.0. This still makes it the first economy to do since the GBB began in April. The change in sentiment is in stark contrast to the last GBB when the outlook there soured by -21.9, by far the most among the twelve main economies surveyed.
The road, less traveled: Only 8.1% of respondents to the June GBB survey “strongly agree” that their country is ready to open and only 6.7% “strongly agree” that their company is ready to return to operating as it had done before the pandemic. Those figures are chilling whether you read them as recognition of the scale and scope of the problem or an indictment of global and country-level responses to covid-19 (or some combination of the two). For them to improve will require more leaders and policymakers around the world to demonstrate to everyone that they can be more effective in containing the virus.
The Shape(s) Of Recovery
Forecasts for the economic recovery from the covid-19 pandemic range across an alphabet soup of scenarios. The most optimistic is a V-shaped recovery that is as sharp and as swift as the downturn has been. Should that scenario be followed by another V, it becomes a volatile W-shaped recovery.
Then there is the U-shaped recovery which projects that the economy will tread along the bottom for a period of time before a more gradual—and perhaps more sustainable—upturn. The most pessimistic forecast is L-shaped: the economy hits a low and then remains there for a prolonged period of time, representing a semipermanent “new normal” of reduced output.
Forecasts For Economic Recovery From The Pandemic Range Across An Alphabet Soup Of Scenarios
The latest results of the Global Business Barometer (GBB), based on a survey fielded in late June, showed sentiment improving once again but remaining firmly in the negative for all but one economy (see below). This suggests the best hope is that global economic recovery—and the various regional and country-level economies covered by the GBB—will be U-shaped. Even then, it may look like an odd, stretched out U, with the bowl area at the bottom expanding far to the right before the eventual upstroke.
The three-month outlook for the global economy among all survey respondents scored -16.8 (the barometer ranges from -50 to +50), moving the needle into the “somewhat worse” category after being in the “much worse” category in the first two GBBs. Latin America led the way, registering an 18.5 point increase—nearly 4 points higher than the next region, Asia Pacific, which increased by 14.8 points. The two regions were also among the biggest gainers across the five other main areas of the barometer.
Industries: A V-shaped Recovery… In Sentiment
Between the first and second GBBs there was a pronounced dip in sentiment among executives across the key industries surveyed, particularly regarding revenue growth and profitability. In April, the readings were under -10 and nearing 0—or no change—in some sectors, including financial services and pharmaceuticals.
By May, as the extent and impact of the pandemic had become clearer, they had fallen by an average of -18.7 points (profitability) and -16.9 points (revenue growth). Manufacturing moved into “much worse” territory on both metrics, and financial services and retail and e-commerce were not far behind.
The rebound in sentiment in June, while short of matching the depth of the April-May drop, was significant nonetheless. On average, scores across all industries were up by 15.7 points. Healthcare improved by 23.3 points on the outlook for profitability and became the first positive industry in that area with a reading of 1.9.
Meanwhile the sector’s global sentiment on revenue growth is a shade away from 0 at -0.5. Regarding profitability, financial services saw an even larger improvement of 24.6 points from June, though that was only enough to drag it to a clean 0 reading, meaning no change is expected over the next three months.
Wrong End Of The Spectrum
On the other end of the spectrum, the public sector and manufacturing industry remain the most pessimistic, although sentiment did rise in both. The global manufacturing sector’s outlook for profitability was up by 10.4 points in June, reaching -17.4, but its outlook for revenue growth increased by only 6.6 points to -20.5.
Global manufacturing output, as measured by a composite of purchasing managers indices (PMI), had already been on a downward trend before the covid-19 pandemic, not least—but not only—because of trade wars and softening demand. At the start of July, key sub-sectors such as consumer, intermediate and investment goods were “closer to stabilizing” according to the JP Morgan Global Manufacturing PMI. Should that continue, we would expect sentiment to improve again in the next GBB.
After Recovery, Resilience
In the previous GBB we used the three broad stages of crisis response—survive, adapt and recover—to frame the survey results from May. It was clear then that most respondents saw the economy, their industries and their companies as still in the survival phase, though many had already started to adapt in recognition that the pandemic wasn’t going to be over anytime soon.
Another month on and we’re still far from the recovery phase (green shoots in China and a few other places aside). Yet whatever shape the recovery may take, many companies now realize just how unprepared they were for a situation like this. Given that few experts believe this will be the last pandemic, let alone the last global crisis of one kind or another, building resilience into operations has become a strategic imperative for the private and public sectors alike.
The Answer Is Digital
The top answer, as might be expected, was “greater digital agility” (cited by 50.1% of respondents). That was followed by “better customer experience” at 45.0% and “more innovative offerings” at 42.0%.
Rounding out the top five were “more informed strategic planning (beyond growth)” at 39.0%, “more productive work environments” at 38.1% and “better business continuity plans” at 37.6%. The emphasis on digital agility above all else is understandable: without digital tools, many companies would have ceased to function during the lockdowns.
That said, it is worrying to find strategic planning and business continuity somewhat lower down the list. A global pandemic was not an unknown risk prior to covid-19, yet few seemed prepared. This often resulted in a scramble for ad hoc solutions—digital of course being chief among them—rather than a methodical, step-by-step response.
If the lesson executives and political leaders take away from this pandemic is that digital is there to save us from insufficient planning then the economic impact of the next crisis might very well be shaped like an “I”.
The Many-Lettered Future
Recovery from the covid-19 pandemic is not going to be as synchronous as the downturn. In a small number of economies, and an even smaller number of industries, it may be V-shaped, but they are likely to be the exception. Everywhere else, the current trend in the GBB suggests we can expect a U, probably some Ws and an assortment of other odd shapes that don’t fit into a model.
Much depends on the ability of countries to re-open in a way that ensures, to the greatest possible extent, that they won’t need to close again. Only 8.1% of respondents to the June GBB survey “strongly agree” that their country is ready to open and only 6.7% “strongly agree” that their company is ready to return to operating as it had done before the pandemic. Those figures are chilling whether you read them as recognition of the scale and scope of the problem or an indictment of global and country-level responses to covid-19 (or some combination of the two).
For them to improve will require not only the discovery, production and distribution of a vaccine, vital as that is, but for more leaders and policymakers around the world to demonstrate to everyone that they can be more effective in containing the virus.