A third wave of recession — Are you prepared to weather it?
A pandemic is a “once in a century” incident. The loss of hundreds of thousands of lives and the adverse impact on the global economy are the unforgettable and inevitable price the world pays, but as we know, every problem brings with it an eye opener. The COVID-19 crisis has proved that not only developing nations but also developed ones are miles away from perfection. Although the current environment has been challenging and disruptive across industries, it has at the same time led to the emergence or ramp-up of previously barely known industries and shown up those that have survived. It has also changed the way we work and look at things
The World Health Organization (WHO) reported 13.4m active, confirmed cases of infection and around 0.6m deaths in 216 countries, areas or territories as of 16 July 2020. In the Americas, the US accounts for almost half of the cases (3.4m), followed by Brazil, with almost 1.9m. In Southeast Asia, India is the major contributor, with approximately 0.9m cases of the total 1.3m.
Source: Acuity Knowledge Partners
The world reports more than 100,000 new positive cases a day, and states in the US and India are reinforcing lockdowns.
To stop transmission, WHO recommends wide-ranging measures including wearing face masks and social distancing, but these are just temporary solutions, and the number of cases will likely keep increasing until a vaccine is developed.
Economic conditions amid the COVID-19 pandemic: Prospects of an even weaker outlook and prolonged destruction of potential output, productivity growth
Economies worldwide have started assessing the damage and easing lockdowns to prevent the damage worsening, but the real adverse effect will likely be reduced only in the second half of 2020. In a downward scenario, global growth could shrink by almost 8% this year.
A global recession on the heels of the COVID-19 crisis:
The World Bank confirms this will be the deepest recession since World War II, with the output of emerging-market and developing economies (EMDEs) expected to drop significantly in 2020. The following factors indicate how deep the recession will be:
- Drop in global GDP growth
Note: For multi-year periods, we show the cumulative contraction. Data for 2020 is a forecast.
Source: World Bank
- Steepest decline in oil demand
- Contraction in per capita GDP growth
- Decline in per capita output in all EMDEs
- Earnings stumble and poverty spikes
- Mounting debt and a low servicing ratio
- A vicious circle of events
Impact on industrial production and manufacturing
- Industrial production and trade
- Manufacturing crisis in many countries
Problems faced by industries in Asia
Two widely accepted challenges are (1) a steep decline in demand and (2) paying salaries. The following chart lists the problems firms in different industries face.
Note: The values in brackets indicate the share of firms in the industry that reported this particular problem.
Businesses are closing across industries; SMEs estimate larger profit reductions and job cuts than big firms
- Impact by size
Note: Thickness of bars varies according to size of firm. Only manufacturing firms are considered.
Top five problems by size of firm
Note: The values in brackets indicate the share of firms in the industry that reported this particular problem. Only manufacturing firms are considered.
Who can help these firms get back on track and how?
Consulting and advisory firms can help these firms find solutions and build resilience. Advisory firms are working with businesses and central and state governments to assess the damage and face the challenges. Giant firms such as McKinsey, Boston Consulting Group (BCG), Bain and AT Kearney are assisting central and state government policymakers in India with resource planning, economic modelling and exit strategies. BCG is working with the central health ministry, and AT Kearney is providing the government with guidance on infrastructure. Ernst & Young is working directly with 9 states and more than 15 central ministries and in 210 districts.
Despite the unfavourable economic conditions, some industries have proven to be more resilient than others and could help the global economy get back on track. We also show below how consulting firms are helping them to recover.
- Internet and technology
- Warehousing and logistics
- Education and training
- Healthcare and pharmaceutical
- Regional agribusiness chain
How Acuity Knowledge Partners can help
Our industry experts and tech-based solutions support these consulting firms. Our services — ranging from research for business unit strategy to tactical opportunities and due diligence for strategic transformation — would bolster the capabilities of consultants, introducing flexibility to the current consulting environment. Our subject-matter experts provide customised solutions to help you deliver projects swiftly and with improved output. In addition, our flexible working models can help you improve margins and revenue. We currently serve the world’s top five management consulting firms, and have delivered more than 180,000 hours of project work and saved our clients USD9m in annualised costs.
We have around 16 years of experience in supporting the world’s leading and largest consulting firms. Our unique set of proprietary automation and workflow management tools help you spend more time on what really matters to you.
Originally published at https://www.acuitykp.com.
World Bank https://www.worldbank.org/en/news/feature/2020/06/08/the-global-economic-outlook-during-the-covid-19-pandemic-a-changed-world
World Bank https://www.worldbank.org/en/news/press-release/2020/06/02/countries-can-take-steps-now-to-speed-recovery-from-covid-19
United Nations World Health Organization (WHO) https://news.un.org/en/story/2020/06/1065902
International Labour Organization https://www.ilo.org/global/topics/coronavirus/sectoral/lang--en/index.htm
World Bank https://www.worldbank.org/en/topic/poverty/brief/projected-poverty-impacts-of-COVID-19
Money Control https://www.moneycontrol.com/news/business/markets/covid-19-impact-5-sectors-that-are-worst-hit-and-the-road-ahead-for-them-5192711.html
United Nations Development Organization https://www.unido.org/stories/coronavirus-economic-impact-10-july-2020
World Trade Organization https://www.wto.org/english/news_e/pres20_e/pr855_e.htm
The Hindu https://www.thehindu.com/business/indias-unemployment-rate-rises-to-2711-amid-covid-19-crisis-cmie/article31511006.ece
About the Author
Navneet Kumar, Delivery Manager, Business Research, joined Acuity Knowledge Partners in April 2010. During his tenure with Acuity, he has supported and managed several research engagement for investment banking and consulting clients across varied geographies. He is part of the consulting practice for past 5 years, supporting an industry dedicated consulting client. Previously, he has supported various investment banking clients in financial & operational analysis, valuation analysis, investment screening and M&A Analysis. Navneet has worked on diverse industries including TMT, Energy and Power, Oil & gas, Retail, and Metal & Mining.
Prior to Acuity, he has worked with a boutique investment-banking firm, where he was involved in identifying the potential opportunity for the existing clients and creating pitch books. Navneet holds an MBA degree in Finance from New Delhi Institute of Management and a Bachelor’s degree in Commerce from Kurukshetra University, India.