Editor’s note: Information for this article was compiled from numerous sources, listed below.
While the COVID-19 pandemic has hit the pause button for the world’s economies, the question of what happens next—and what should happen next—is being debated by the business and economic development community. What follows is merely a sliver of current observations and commentary about the North America, Chinese and the European Union markets.
A recent webinar discussion organized by the foreign-direct investment firm Conway set out a few scenarios of what’s happening—and what businesses and organizations should consider doing going forward.
As background, the webinar host, Conway, assists local, state and national economic development agencies worldwide, to grow their economies, attract corporate investment, compete for jobs—and to recover from crisis. For the webinar, it reported an online audience of listeners from 45 different communities across U.S. Canada and Mexico
The guest speaker was Peter Zeihan, a geopolitical strategist, who specializes in global energy, demographics and security. He is the author of The Accidental Superpower, The Absent Superpower and the just-released Disunited Nations.
Zeihan’s view is that the globalization of trade—is ending, but there is “a lot of hope here” and “positive changes to come,” particularly for the United States as more manufacturing is moved back to the Americas.
First, as to the pandemic, he called the virus three times as communicable as the normal flu and spreads the fastest in tight confines. For now, the only way to overcome is by lockdown unless testing on the population is astronomically increased.
(This view is agreed by organizations such as the Business Roundtable2, by the way. The United States needs to see increased testing before businesses can begin to reopen, BRT President & CEO Joshua Bolten recently said. He added that “all the CEOs in our organization agree that testing is an absolutely crucial gating element to getting us back and running safely.”)
As the virus peaks in the U.S., Zeihan said lockdowns will be released but then regions will return to sequestering as COVID-19 resurges here and there. He estimates the nation will be able to “get back to business” by late summer—with the regional economies disrupted by local flare-ups and resulting lockdowns.
Europe and the rest of the world where there’s mass transit causing the virus to spread more rapidly may have a harder time controlling resurgences, he added. “We can shut down Chicago; it’s hard to shutdown Paris.”
Most countries, Zeihan suggested, can’t maintain their supply systems—which are very complex and easily disrupted. “Every part of the supply system is up for grabs…Medical supplies are not likely to be outsourced again,” he noted.
The other speakers in the webinar were Conway’s international trade development strategists Executive Vice President Ron Starner and President Adam Jones-Kelley. Observations by all three have been compiled and edited:
- Manufacturing has been returning to the Americas—to the U.S. and Mexico and will continue. It took 30 years to build the global supply chain system, and that is going to break apart in the next 2 years. President Trump’s trade policy was already having an effect with this.
- The U.S. and Mexico will have a much easier time exiting the pandemic crisis than other countries.
- The U.S. is retooling as machine shops are busier than ever, are absorbing capital and responding quickly—a “flash industrialization” will occur.
- Some corporate executives are “desperate” to get back to work to full strength and taking “extreme” measures to keep their businesses open and avoid layoffs.
- The fear in the U.S. of having access to labor is gone because of massive unemployment. “The day of labor shortage is over.”
- Smaller companies will recover more quickly as they are more nimble.
- Canada, which has a better health care system and a healthier population than the U.S., will recover more quickly from the pandemic, but its regulatory structure “crushes out” small producers in every sector, making it harder to be in business if the company is not large. The aerospace and automotive suppliers will be “going down for weeks at a time.”
- Travel will not return to its 2019 levels until 2022—or possibly 2024. A recent Gallup poll found consumers will be less likely to travel in the next 3 to 6 months.
- The trillion-dollar U.S. stimulus funding will not likely cause inflation—it’s a “life preserver.” Inflation will be only slight going forward; in Europe and Asia, deflation is occurring.
- “The world will get through this”—having bounced back after 9/11 and the 2008 recession by relying on ingenuity.
- Local economic development efforts will be called upon for company-specific retraining of the workforce.
- Capital will never be cheaper than right now, nor will there be this level of debt forgiveness, and capital is flooding into the U.S. currently—the dollar is maintaining its strength. At every level, now is time to borrow.
- Brands are built over years, and during a recession they get the chance to be considered by consumers who would otherwise not take notice or see relevance. Certain organizations can accelerate during a recession, seeing the downturn as an opportunity.
- Businesses and organizations should use the present to increase their external marketing activity. The steps taken right now will basically determine when a business will recover and marketing will have a large part in that. Ford and Kia, for instance, have launched efforts to reassure customers—picking up cars for servicing, deferring loans. This demonstrates leadership.
“China has suffered through the immediate economic impact of COVID-19 and is now working toward recovery,” according to the New York-based Rhodium Group, a leading independent research provider. “Some initial signs are positive—the end of strict isolation measures means that people are mostly back to work and many aspects of economic life can resume, even if overall activity remains at a lower level.”
The gross domestic product growth projection has been downgraded from 6.1% to 2.6% for 2020, and external demand—the export of Chinese goods overseas—has weakened as economic conditions here in the U.S. and the European Union deteriorate.
Rhodium Group finds the Chinese the property sector (real estate market) a key to further economic flailing. Developers are struggling with financing and debt as demand deteriorates. “New construction starts fell 25.9% as migrant construction workers were kept off construction sites,” said the Rhodium Group report. “Developers also shuttered showrooms, pushing sales of finished homes down 32.7%. In response, property developers have started slashing prices.” More price deflation could come if buyers wait for prices to bottom out. The decline in the property sector would have impacts elsewhere, in steel, cement, plastic, glass and aluminum—“weighing down any potential recovery after the immediate effects of the outbreak and containment policies in China are past.”
Although consumption of household goods and services might be the first to bounce back, the demand will remain weak, given problems in the manufacturing and exports, the report concluded.
Paul Polman, chair of the International Chamber of Commerce, and former CEO of Unilever, said many European Union leaders are calling for a “greener, more inclusive and equitable world,” using the recovery from the pandemic to put in place the European Green Deal. The Alliance for a Green Recovery includes 180 European politicians, business leaders, members of the European Parliament and environmental activists—plus 35 leading CEOs. They made the announcement April 14.
“As we think about an exit plan,” Polman said, “many are talking about redesigning the economy.” Moving to a green economy makes an “enormous amount of sense,” since it would unlock 26 trillion dollars, 65 million jobs and prevent 700,000 deaths a year.”
To meet climate change, moving to a green economy is “probably the [biggest] story of the century.” The pandemic is a “warm-up for the slower moving climate crisis” and is exposing how parts of society—people who are unprotected, poor or live in polluted environments—are more vulnerable.
Coming out of the pandemic, “we would be smart” to accelerate the green economy and that would create more jobs and better jobs and be better for bio-diversity, Polman said.
- “How America Will Lead the Global Recovery,” Conway webinar attended by the author, April 3. The full report is here.
- “A Long Way To Go Before There’s Enough Testing To Reopen Economy,” Business Roundtable CEO Says, California Business Roundtable April 17 eNews.
- “Deconstructing the Virus Impact: How China’s Recovery Will Unfold,” Rhodium Group, April 10, 2020.
- Global Translations Virtual Interview with Paul Polman, chairman of the International Chamber of Commerce; interview by Ryan Heath, Politico.com, April 17, 2020.