COVID-19: The economic impact of the coronavirus

 

It is this impact and host of others that Dr John Glen, economist, faculty and ex-head of custom executive education, Cranfield University shared with us on a webinar that Neil Marshall hosted for ChangeSchool and attended by people from 123 organisations across 21 countries.

Here are the main takeaways from John’s session (with additional references)

The Health Challenge

As John said, all we are doing now is buying ourselves time. John referenced WHO’s Mike Ryan’s opinion that lockdowns by themselves are insufficient and you can read more about it here in Thestar

The impact on the economy and potential actions

The immediate effects of the virus can be anticipated in several rounds: panic for households and businesses; the uncertainty leads to drop in household spending and investment; reduction in consumption leads firms run out of cash and potential bankruptcies (62% of small firms won’t survive if the economic stalemate continued till Dec 2020)[1]; workers lose their jobs (the US has had 22 million unemployment claims) all leading to a financial crisis. This is all driven by John Maynard Keynes ‘Paradox of Thrift’  which you can see a quick video on YouTube and Paul Krugman in 2009 applying the concept to the aftermath of the financial crash.

You can find out more in research carried out by Paolo Surico, Economics Professor at London Business School[2], on “Economics of a Pandemic”.

The size of the impact can be as large as 15% of GDP in the short run, the Financial crisis in 2008 was around 4.5%.

Of the range of blunt instruments available to macroeconomists and policymakers, cash disbursements to households and businesses are likely to have the most significant impact and stall adverse effects of the spiral. Tax incentives or cuts, emergency loans and borrowing on better terms, by their own, are unlikely to prevent a collapse in aggregate demand.

The other actions governments can take are testing, quarantining, bio passports, tracking, social distancing and building herd immunity.

The impact on firms and potential action

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Source: Live word-cloud submissions by participants from 123 organisations on the ChangeSchool webinar on 21st April 2020

The paradox of thrift applies to corporates as well. All sectors are impacted, and infographic above the header of this article shares the collective perception of which sectors will recover quickly and which sectors will take a longer time. The impact on small firms is much larger than large firms, especially those whose cash flows and cash buffers are tied to immediate economic activity. The stalemate will only see a third of the business remain open if the crisis continues till December 2020.

We are also undergoing a massive social experiment on well-being, excessive work hours, and the social aspect of work and impact on creativity, innovation, productivity. Some business activities, such as the reduction in air travel and requirement for corporate real estate, are likely to change in the future. Professor Clare Kelliher is an expert in the field, with recent books and articles such as this https://www.routledge.com/Flexible-Working-in-Organisations-A-Research-Overview/Kelliher-Menezes/p/book/9780815356325. She is doing research right now on the impact of the lockdown on work which Cranfield alumni have been invited to take part in.

The pandemic is affecting the global supply chain and the need for supply chain resilience. John specifically mentioned RiskMethods, https://www.riskmethods.net/ who monitor supply chain data in real time and use AI to suggest the best routes and chains to use continuously. The pandemic has accelerated digital adoption, online education before the pandemic event was a preference; today, it is no longer a choice.

Key concern coming out of the discussion and Q&A in the webinar: The impact on us as stakeholders and the new challenges organisations face

You’ve got employees furloughed and out of touch, and customers are not able to come in. For Universities, students are no longer on campus, and the new international intake is uncertain. Durham university has retracted controversial plans to provide online-only degrees due to the coronavirus pandemic following a backlash from students and lecturers[3]. We have three immediate challenges that you told us about

  • Motivation challenge: Our employees are not in our buildings and some are furloughed. How do we keep them motivated?
  • Belonging challenge: Our new students may not even make it on to campus at the start of the new term. How do we create a sense of belonging and shared learning experiences? How do we make sure our new students show up?
  • Loyalty challenge: Consumer behaviour is changing rapidly. How do we create or keep customer loyalty when the normal communication channels aren’t working?

Our webinar on Tuesday 28th April at 11am GMT+1, with Martine Davies, Engagement Director at ChangeSchool addresses these very challenges. You can sign up here: Navigating the customer, employee and supplier connection challenge in the time of COVID-19, on Tuesday 28th April 2020 at 11am UK time (GMT+1).

Our next webinar:

Come explore, learn and discuss potential strategies to overcome these challenges with Martine Davies, ChangeSchool’s Engagement Director. She will share how one can use the principles of network engagement to face the challenges of reduced contact, increased noise on social media, and an inability to connect with customers, suppliers and employees in person. Martine has spent the past 15 years working with organisations like KPMG, PwC and Cranfield School of Management to develop and implement stakeholder and community-focused programmes.

Navigating the customer, employee and supplier connection challenge in the time of COVID-19, on Tuesday 28th April 2020 at 11am UK time (GMT+1).


[1] In a survey of small business in the US, if the hypothetical crisis duration only 38% of them on an average will be open. In some sectors such as restaurants, bars, and catering only 15% will survive. Source: Bartik et Al, April 2020. How are small businesses adjusting to Covid -19, early evidence from a survey

[2] Professor Paolo Surico an Andrea Galleotti  research on “Economics of a Pandemic”, funded through European Research Council and Wheeler institute of Business and development and the outcomes was subsequently shared on a London Business School webinar #LBSWebinars

[3] https://www.theguardian.com/education/2020/apr/25/durham-university-retracts-controversial-plan-to-provide-online-only-degrees

Viren Lall is the Managing Director at ChangeSchool, a specialist in entrepreneurship and a an adjunct (visiting faculty) professor of management. He has delivered programmes in 15 countries and manages international partnerships across the 6 GCC countries, South Asia and Central Asia. His contributions on organisational change were published by Kogan Page. He has launched two start-up companies in the past. He has advanced degrees in computer science and engineering from King’s College London, IIT Delhi and has an MBA from London Business School.

- Laura Hayes