The dawn of a new normalcy

The impact of the coronavirus on human life, health, social liberties or the global economy is unprecedented in modern times. By mid-April 2020 one third of the world’s population had gone into lockdown with countries such as Italy, Spain, France, the UK, New Zealand or India implementing the most restrictive forms of countrywide mass quarantines. After China had eased its restrictions and lifted its ban on barring the people of Wuhan from leaving the city, also the first European countries declared their lockdown strategies a success and began to introduce measures to gradually loosen their restrictions. As countries struggle to carve out a route to return to normalcy, it becomes evident that whatever the new normalcy will be, it will starkly differ from the old one. Some of the developments that are becoming apparent now will be the subject of this article.

Recession to shape the near-term future

The gradual end of the containment measures in any market will be largely overshadowed by the sharp contraction of the economies. In its baseline scenario, published in mid-April – assuming that the pandemic will fade in the second half of the year and containment efforts would be unwound – the International Monetary Fund (IMF) predicted a decline of the global economy by -3% in 2020, much worse than the financial crisis in 2008-09. For the advanced markets, the scenario is gloomier, estimating a contraction by -6.1%, while the emerging markets are expected to fare better with a reduction of -1% for the full year.

While China confirmed that in the 1st quarter 2020 its gross domestic product had fallen by 6.8% – its first decline in four decades – Standard & Poor’s revised its outlook for Asia-Pacific’s growth to 0.3% for 2020, down from 4.8% prior to the emergence of the pandemic. The rating agency now expects a flattish U-shape recovery with activity returning to pre-outbreak levels by 2023. The regions’ economies are expected to enter a prolonged period where social distancing measures are interlaced with full lockdowns and business-as-usual phases until mid-2021, involving some country-specific social distancing constraints. Complicating matters even more, each country’s position in this continuum seems likely to shift randomly as second and third waves of infections rise and fall, the rating agency predicts.

Globalisation unraveled

The fall-out from the recession will largely impact on what kind of a new normalcy will emerge out of the crisis. Although much is still in flux, some of the changes that emerge during the crisis will be lasting. One of the more obvious ones is the unravelling or “shortening” of the global supply chains or even a “de-globalisation”. Already under fire from the US/ Chinese trade disputes, protectionist activism but also due to its impact on climate change, the corona pandemic has highlighted that global supply chains, fine-tuned to just-in-time delivery, are highly vulnerable to disruption and need to become more resilient. For some products which in light of the pandemic have suddenly gained “systemic” relevance, single sourcing is replaced by a diversified supply that will come at the expense of higher costs and lower efficiency. To some pundits, the globalisation of the past two decades with its focus on outsourcing and offshoring has proven to be too fragile in the face of a global crisis. In fact, globalisation will give way to more resilient value-chain eco-systems or even to a re-domiciliation of manufacturing and supply close to the end market.

Pervasive digital technology

Data-enabled-services are perceived to have largely benefited from the corona crisis. Information technology and in particular robotics and automation are seen to facilitate the relocation of production closer to home as it will help to level out differences in labour costs. The automation in manufacturing was already well advanced prior to the Corona crisis. But it is bound to gain even more traction, as – according to the Brookings Institute – in the past 30 years in each recession, most job losses took place in “routine,” automatable occupations — meaning such jobs accounted for “essentially all” of the jobs lost due to these crises.

Companies that have already incorporated digital connectivity into their DNA, have an advantage going forward. The corona crisis demonstrated the power of the internet as it enabled people to work from home and cease the need to travel or meet physically. According to a poll by the MIT during the crisis, 34% of Americans switched from commuting to working from home. While Zoom, the video conferencing service, had about 10 million customers per day before the pandemic, its daily users have risen to more than 200 million during the crisis. Much of that will stay because consumers and companies have realized that this new connectivity enhances flexibility and reduces cost.

E-commerce is another digital service that has greatly expanded during the Corona crisis. Already prior to the pandemic, online sales steadily gained market share at the expense of the traditional retail trade. However, data from across the world indicate that the usage has widely increased. According to McKinsey, online sales have risen by 81% in Italy since the end of February and in Britain it is expected that online sales have greatly advanced, doubling from its pre-crisis share of 20% of overall retail sales. According to a study by Oliver Wyman conducted in 9 advanced markets, 13% of consumers surveyed stated that they switched to online grocery shopping and it would have been even more, if the industry had found a solution for its capacity bottleneck of home delivery.

Also, the willingness to share data and voluntarily make it available has increased in the crisis. Going forward this will be key to the broader acceptance and utilisation of Artificial Intelligence or blockchain. Being able to track the spread infection is seen as a precondition to control its transmissions and lift containment measures. The digital giants, Apple and Google, have already teamed-up to combine the access to their network of 3.5 billion mobile phones in assisting to track the virus. The US, Germany, Ireland, the UK and other countries are still working on apps, while Singapore, China and South Korea have already systems in place that have become key tools in their effort to contain a further spreading of the virus.

Telemedicine and virtual health care are another type of data-enabled services that benefited in the corona crisis. According to Bain & Company, prior to the outbreak of the pandemic, Chinese patients – similar to their counterparts all over the world – preferred to visit their physician in person. However, in aiming to avoid contamination and crowds at hospitals, consumers turned to digital healthcare delivery models such as telemedicine and online retail pharmacies. The situation was similar in the US, where the federal government lifted its restrictions on telemedicine for seniors under Medicare, radically changing in the way in which medicine is delivered.

Finally, sustainability and climate change are two themes that might come out of the corona crisis even stronger. Although the looming recession will create some headwinds for the sustainability debate as companies and consumers are faced with existential challenges, long-term the corona crisis might serve as a “dress rehearsal” for climate change, as Bain & Company states. Firstly, the crisis has demonstrated that companies can curb down on travel and commuting, radically reducing their carbon footprint. In fact, the lockdown temporarily cut CO2 emissions in China by 25% and by 5.5% in global CO2 emission for 2020, according to Carbon Brief, an online magazine focused on climate change. This represents the largest ever annual fall of carbon emissions.

Many pundits see COVID-19 as a blueprint for a global crisis to unfold due to ignorance and lack of adaptability and resilience. The risk of a global pandemic had been known, not only to the science community. Since the beginning of this century, the world had witnessed SARS, the swine-flu, Ebola and MERS. Still, only those Asian markets with first-hand experience with SARS appeared to be prepared and acted forcefully at the first signs of the virus’ outbreak.

Nevertheless, according to the Club of Rome, COVID-19 reflects a broader trend: more global crises are coming as ultimately species, countries, and geopolitical issues are interconnected. COVID-19 has shown how the outbreak of an epidemic can wreak havoc on the entire world. Similarly, climate change, biodiversity loss, and financial collapses will not observe national or even physical borders. These problems have to be managed through collective action that starts long before they become full-blown crises.

Scientific research is probably a discipline that received a boost of recognition in the corona crisis as well. As research shows, deforestation, biodiversity loss or climate change increase the threat of pandemics. The reduction in natural habitats drives wild animals closer to human populations and increases the likelihood that zoonotic viruses like SARS-CoV-2 will make the cross-species leap. Similarly, the Intergovernmental Panel on Climate Change warns that global warming accelerates the spread of infectious diseases and will likely accelerate the emergence of new viruses. Governments and institutions that succeeded in containing the pandemic collaborated closely with scientists. These types of expertise are essential also in mitigating the threats of climate change, biodiversity loss, and other pandemics.