Sorcha McKenna, managing partners, McKinsey & Company Dublin office
During a whistle-stop tour of the four stages of COVID-19 – the situation now, scenarios and path forward, planning ahead across multiple horizons and transitioning to the next normal – given at a Shannon Chamber webinar, the managing partner of McKinsey & Company’s Dublin office, Sorcha McKenna, presented two potential scenarios for when the next normal might happen.
The webinar was sponsored by Fine Grain Property, an Irish company that owns and manages 1 million sq. ft. of property in 15 locations in Ireland, where 7,000 people are employed, with many currently working off-site, and supported by Clare County Council. Over 300 people attended the webinar, such was the interest in the topic – how to restart national economies during the coronavirus crisis?
Prefacing her presentation with a caution that we cannot bank on how everything is going to change and that we have no idea at this stage what normal will mean, we do nevertheless, have to plan for a transition to new norms.
Against a background that official case and death counts worldwide may only be capturing a fraction of the true totals, that public intervention to date has been broadly successful and that there is evidence that there will be some recurrence of the virus, Ms McKenna suggested that scenarios for recovering from the economic impact of COVID-19 have to be gauged against a number of variables, namely: virus spread and public health response; the rapid and effective control of virus spread; effective response but (regional) virus recurrence and; a potential failure of the public health system to control the spread of the virus for an extended period of time, such as until a vaccine is available.
Taking all of those factors into consideration, McKenna stated: “In a scenario where the virus is contained by mid Q2, when virus seasonality combined with a stronger public health response drives case reduction, countries like China would undergo a sharp but brief slowdown and relatively quickly rebound to pre-crisis levels of activity. In Europe and the US, monetary and fiscal policy would mitigate some of the economic damage with some delays in transmission, so that a strong rebound could begin after the virus was contained at the end of Q2, 2020.
“However, in a scenario where the virus spreads globally without a seasonal decline, overwhelming health systems, China would recover more slowly, be hurt by falling exports and its economy could face a potentially unprecedented contraction. The US and Europe would face a decline of 35 to 40 per cent at an annualised rate in Q2, with major economies in Europe registering similar performance. Unemployment would rise and we could witness a lot of business closures, creating a far slower recovery event after the virus in contained. Most countries would take more than two years to recover to pre-virus levels.
“The exact scenario is somewhere between both,” she added.
Advising companies to analyse the depth of the disruption on their businesses, the behavioural shift in demand for their products or services and how people will react generally in the transition period, Ms Kenna said that it is important to look at changes in market capitalisation by industry.
Stating that some industries, such as high-tech and pharma have not suffered much if any impact, others, including commercial aerospace, air and travel and oil and gas have been adversely affected and will need strong government support to get them through to some form of recovery.
Advising webinar attendees to address the immediate challenges that COVID-19 presents for their workforces, customers and their business partners, to look at their near-term cash management challenges, to create a robust plan for returning their businesses back to scale quickly, to re-imagine the ‘new normal’ and how they might need to reinvent themselves and, to be aware of how the regulatory and competitive environment in their industry sectors might shift, Ms Mc Kenna concluded by stating: “Everyone, employer and employee alike must understand that they are equally responsible for preventing the spread of the virus and getting our economy back.
“We are living through an unprecedented disaster, which will have a long-lasting impact on global and local economies. We are now at the tipping point. Collectively, we have to re-imagine what the future might look like.”
Commenting after the webinar, Fine Grain Property’s CEO Colin MacDonald described it as informative, challenging, and comprehensive. adding: “The impact of COVID-19 is a global shared experience. It is affecting businesses in all sectors and at many levels. What is very notable amongst the business community is a commendable willingness to move away from an introspective stance to working collaboratively to share experiences and potential solutions. This crisis has truly redefined the workplace community. The insights shared at the webinar will greatly benefit us all.”
Concurring with this sentiment, webinar host Helen Downes, CEO of Shannon Chamber added; “The supports communicated by Government to-date have been welcomed by business. As evidenced from feedback from our members, these will have to be reviewed as we go through the different phases of re-opening as there is little doubt that the next phase and subsequent phases will bring their challenges. There is an onus on every one of us now to adhere to the recommended measures and ensure that we take responsibility for our actions during the roadmap communicated to reopening society and business.
“As mentioned by Ms McKenna, the aviation sector will need support to help it transition. This sector is so vital for the Mid-West region, not only for the connectivity provided through Shannon Airport for business and tourism but also for the number of employees reliant on the thriving aviation sector. It is vital therefore that the incoming Government prioritise funding to Shannon Airport and support airlines in restoring vital air services into Shannon.
“We simply have to get our airports operational as soon as practically possible to support our tourism and hospitality sectors. We cannot afford to let businesses in these sectors go to the ground; they will be difficult to reignite and we cannot capitalise on their potential if there is no sector,” added Ms Downes.