A bridge past COVID-19

A bridge past COVID-19

Learn about the current scenario analysis from KPMG’s Office of the Chief Economist.

Article by Constance L. Hunter, Kenneth Kim and Henry Rubin*

The rapid spread of COVID-19 has introduced new challenges across the business landscape. Working together, KPMG can help business leaders respond with practical and informed approaches to navigate uncertainty and gain clarity in changing times.

The following insights and guidance can help business leaders gain perspective and better understand evolving business implications as they occur.

COVID-19 economic cliff

As COVID-19 spread across the globe, successive countries—78% of the world’s population as of April 14th—have engaged in varying degrees of social distancing. Mandated social distancing, combined with voluntary aversion behavior, will cause sharp falls in discretionary consumption and some declines in non-discretionary consumption as well as a fall in business and household investment. Job losses have already started and dwarf what was seen during the Global Financial Crisis; we expect job losses of at least 25 million in the second quarter. The sudden drop in economic activity has hurt indebted firms and firms with little cash flow the most. We expect permanent loss of some small and severely impacted businesses as well as restructuring in sectors such as Energy and Consumer Discretionary, two sectors that are heavily hit and heavily indebted.

COVID-19 economic climb

Government programs are an economic bridge to the future, which will prevent depression but not a recession. The strength of the recovery is dependent on several things any one of which is beneficial; all of which are better when combined. They are:

  • The ability to flatten the curve and return the healthcare system to normal functioning (via more effective treatment protocol, widely deployed)
  • Widespread testing and contact tracing (regular testing of symptomatic and asymptomatic populations)
  • Better knowledge and proven efficacy of serologic treatment (immunity passports)
  • A vaccine and the ability to administer it to all regardless of health insurance coverage status
  • We assume the economy can reduce mandated lockdowns on or around June 15th (We are working on other scenarios.)
  • We assume a slow restart via aversion behavior by households and firms unless all of the medical mitigation efforts are in effect
  • The pace of climb back to a normal economy will be heavily impacted by the number of full-time employees separated from their firms; the more separations the slower the restart.

Download the full KPMG report here.

*Hunter is a CBE and serves as Chief Economist at KPMG; Kim is a Senior Economist, and Henry Rubin is an Economic Analyst.

About the Author:

CEO Staff
error: Content is protected !!