Experts say that, leaving aside possible partial negative side effects, individuals, businesses and society as a whole may gradually begin to look to a brighter future. But that future will be different from the one we have projected in previous years; there will be no return to the conditions that prevailed in 2019. Just as the terms "pre-war" and "post-war" are commonly used to describe the 20th century, future generations are likely to discuss the period before and after COVID-19.
Strengthening of confidence will also support people's purchasing power
As consumer confidence gradually returns, so will expenditure, which will gradually pass through the sectors as withheld demand is released. This has been the experience of all previous economic downturns. One difference, however, is that this time services have been particularly hard-hit. Therefore, the biggest jump in demand will be recorded especially by enterprises that were most restricted, such as restaurants and entertainment establishments.
This does not mean consumers will act in unison. McKinsey's latest consumer survey, published in late October 2020, found that countries with older populations, such as France, Italy and Japan, are less optimistic than those with younger populations, such as India and Indonesia. China was an exception: it has an older population, but is clearly optimistic.
Production in China was the first to return to its previous state, by September last year, and the same was true of consumer spending. With the exception of international air transport, Chinese consumers began to behave and spend much the same as they had before the crisis. Australia also offers hope, with household expenditure on goods and services increasing by 7.9%. How quickly and deeply trust will be restored is an open question. It depends on the speed of introducing vaccination against COVID-19, which significantly supports trust.
The crisis will spark a wave of innovation and kick-start a generation of entrepreneurs
Necessity is the mother of invention, as Plato put it. And he was right. During the COVID-19 crisis, digitisation was one area that saw huge growth, involving everything from online customer service to teleworking, supply chain rediscovery to the use of artificial intelligence (AI) and machine learning to improve operations. Healthcare has also changed significantly with telemedicine and biopharmaceuticals coming to the fore.
In the third quarter of 2020 alone, for example, more than 1.5 million new projects were created in the United States - almost double that of the same period in 2019. However, the European Union did not experience such a rapid increase, probably because its recovery strategy tended to focus on job protection (not income as in the US).
At the same time, the number of new businesses in Europe has also grown. For instance, the number of new businesses registered in the United Kingdom increased by 30% in the third quarter of 2020 compared to 2019, the largest increase since 2012.
Overall, the COVID-19 crisis has destroyed mainly small businesses. In the United States, for example, there were 25.3% fewer in December 2020 than at the beginning of the year. Nevertheless, the overall positive trend in the growth of new projects could be a good sign for job growth and economic activity once the recovery is stabilised.
Digitisation is increasing productivity and accelerating the fourth industrial revolution
There is no going back. Many executives said that with digitisation they had accelerated their processes 20 to 25 times more than they thought possible. How this rapid progress contributes to long-term productivity will be shown when the data for the next few quarters is evaluated. However, it should be noted that US productivity increased by 4.6% in the third quarter of 2020 after a 10.6% increase in the second quarter, the largest six-month improvement since 1965.
A McKinsey survey published in October 2020 found that companies are three times more likely to perform at least 80% of their interactions with customers digitally than before the coronavirus crisis.
Historically, technological development has not always been a smooth or elegant process: companies have had to try to install or adapt new technologies under strong pressure. As a result, some systems have remained clumsy. The short-term challenge, then, is to move from a crisis response to building and institutionalising what has been done well so far.
For the consumer industry, especially retail, this could mean improving digital and multi-channel business models. In healthcare, it is about setting virtual possibilities as the norm. Insurance is about personalising the customer experience, etc. The COVID-19 crisis has created a need for companies to reconfigure their operations and an opportunity to transform them. If they do so, they can become more productive.
-bb-