The Covid-19 crisis is a once in lifetime seismic shock to the global economy. At the time of writing, now over 2 millions cases of coronavirus (SARS-CoV-2) have been recorded globally in more than 180 countries, with transmission growth accelerating. The true extent of the long-term impact on the global economy and the future of work remains uncertain.
According to new research from ACCA, the global body for professional accountants, organisations across the world in the public and private sectors have expressed deep concerns about the impact of the Covid-19 crisis on their people, productivity and cashflow, Covid-19 global survey: inside business – impacts and responses also suggests the crisis is significantly impacting expected financial forecasts with 80% of business leaders expecting revenue and profits to fall this year compared to last year.
The severity of the headwinds facing the global economy were also reflected in ACCA’s Global Economic Conditions Survey for Q1 of 2020. Headline findings found that global confidence fell to its lowest level on record with big falls in all regions. The global orders index, which tends to be less volatile than confidence, also fell sharply but not to an all-time low. In Asia Pacific, confidence is the lowest among all regions and the orders balance fell more than anywhere else in Q1.
The global economy is heading into recession as private economic activity collapses due to an effective lockdown in many countries. Falls in output approaching 10% are possible. Early data releases, such as monthly surveys in the US, euro-zone and UK point to plunging levels of economic output. Emerging market economies face additional difficulties as a flight to quality among investors triggers capital outflows. Oil exporters will suffer lost revenue after the collapse in oil prices.
ACCA is recommending that organisations follow the ‘three As’ of crisis planning and response – Act to respond in a sustainable manner and focus on employees and stakeholders; Analyse the different information sources to secure your organisation; and Anticipate the business impact and future trends so that organisations can look to innovate.
The findings from both our Covid-19 and Global Economic Conditions surveys send a clear and urgent message to governments across the world. The ‘three As’ are as relevant for governments and policy makers in responding to the pandemic crisis.
Governments must act to ensure businesses have the support necessary to overcome immediate cashflow problems caused by the shutting down of economies in order to tackle the spread of Covid-19. Unlike previous financial crises, this pandemic poses very different challenges to previous wholescale economic shocks. Governments and central banks therefore need to think and act fast to mitigate the consequences as economies hit an emergency stop.
Governments who have acted at pace to address the immediate impact on business and the wider economy are to be congratulated. But they must not become complacent. According to our survey almost 1/3 of respondents remain unsure on the effectiveness of current government economic stimuli packages, and 12% currently see them as ineffective. Fiscal policy makers must analyse the effectiveness of the measures they have put in place, in real time. Stimulus and support measures must be kept open and flexible in order to mitigate the biggest risk faced by economies as the impact of the crises evolves. Crucially, measures need to get support to businesses and to people quickly, to mitigate the short term cashflow problems that so many are grappling with.
The economic impact of Covid-19 will be long lasting. Some businesses will be hurt more than others and, conversely, some will recover faster than others. Government thinking in the mid-term response needs to anticipate what measures will need to be in place to support and enable viable businesses to recover. This will require both long-term thinking and mid- to long-term support to save jobs and enable a return to sustainable growth.
Governments must look to work closely with business and international organisations in delivering support packages which may need to be in place long after the pandemic has passed. Financial institutions must do their part in keeping cash flowing to hard-hit businesses during their time of struggle. In turn, governments must do what they can to reduce the risks taken on board by large financial institutions, such as underwriting a proportion of lending, or by incentivising bank support for smaller businesses.
This is a global crisis and governments, business and international organisations will need to work together to find solutions that will work for all at national, continental and global levels. It is vital that governments work together to develop national and international exit strategies that can support economic recovery post-the pandemic. Failure to develop and deploy comprehensive exit strategies will only prolong the economic downturn and risk depression.
Those businesses, particularly the most profitable and least affected by the pandemic must expect to also work with their governments to do their part to save smaller businesses, who may be within their supply chains, from going under as a result of the crisis.
The opinions expressed herein are solely those of the authors and do not necessarily reflect the official views of the GGKP or its Partners.