The COVID-19 Economic Recovery
But back to the economy. McKinsey then combines those 3 virus response scenarios with their aforementioned “second- and third-order effects”—a ballooning historic economic crisis with massive bankruptcies and another banking crisis, a scenario wherein financial institutions effectively survive but smaller institutions recover much more slowly, and a 3rd way where policy interventions effectively restore the previously strong fundamentals of the economy.
They run all 3 public health scenarios with the 3 economic outcomes to create a group of the 9 likeliest possibilities in an economic impact of the COVID-19 crisis graph. You’ll notice that some of the outcomes are shaded in grey, which are favorable scenarios they say “many currently expect.” Each of these is a U-shaped or V-shaped curve that does indeed depict terrible recession conditions but also has us coming out of the downturn in a pretty good position. These all show the economy fully recovering or almost fully recovering. (These are all covered far more deeply in McKinsey’s 56-page COVID 19: Global Health and Crisis Response.)
But 5 of the 9 scenarios are pretty terrible, including what they call the “black swan of black swans”—that is, a situation with no economic recovery. Some of the other terrible projections show the economy not recovering in the foreseeable future, the virus spread continuing for more than a year without a vaccine, and governments unable to plug a nonstop stream of layoffs, bankruptcies, and additional financial crises.
Under these scenarios, a full recovery would not occur until 2022 or 2023 or later—or perhaps never. These are severe and considered unlikely, but McKinsey notes, “we cannot exclude these more extreme scenarios for now.”
The Optimistic Case for a COVID-19 Recovery
Some industries and sectors will be able to recover more quickly than others. Financial analytics firm Morningstar has its own long-term coronavirus economic impact forecast that predicts the pain will be “less than [the] 2008 Recession.” They predict a substantial drop in cases “by the end of May,” and the lifting of societal movement restrictions ”in June and July.” While the Morningstar analysis predicts the dread second spike of infections later this year, they also anticipate effective pharmaceutical treatments being available in the summer months and “ultimately a vaccine in 2021.”
“We still expect a modest long-run economic impact, with GDP down 0.9%,” the Morningstar analysis predicts. But the authors also add, “In our view, a COVID-19 recession doesn’t fit the mold of a 2008-style recession with longer-lasting economic impact.”
Their report is quite lengthy but well worth a read. Deep into the analysis, Morningstar addresses the topic of which sectors will suffer the steepest and lengthiest downturns. They do predict a bad 2020 downturn—but an eventual 2021 rebound—for hotels, restaurants, arts and entertainment, and air travel or businesses who rely on air traveler-related revenue. In fact, they get quite granular in their predictions of overall 2020 business declines for air travel (35%), hotels (37%), and restaurants (18–30%, with finer dining taking the higher-end losses).
Those declines might sound less severe than what your small business is encountering right now, as in many areas, forced shutdowns have reduced business by as much as 100%. But keep in mind that those doors are likely to reopen at some point this year, and customers will have money to spend in ways that they cannot right now.
How Different Industries Will Recover from COVID-19
Most small businesses will have to view April, and possibly the whole month of May, as a complete scratch. Arts and entertainment face the toughest road, as more than “75% of large events will be canceled through the end of 2020,” per Morningstar’s prediction. Many arts and entertainment events and shows are being reintroduced as online streaming experiences, but this process is coming along slowly and events are proving difficult to monetize. But the quality of these events and their revenue-generating ability are improving with each successive weekend.
On the brighter side financially, Morningstar feels retail is positioned to weather this situation similarly to the 2008 recession. It’s odd to hear a 2008 recession comparison as a favorable and rosy assessment, but here we are.
Retailers understand that the current situation is quite bleak, though a large percentage of them benefit from their sectors falling into “essential business” categories that have been allowed to remain open during shelter-in-place orders. While various states and municipalities define “essential services” differently, the Department of Homeland Security has a list of which businesses are essential businesses in most areas. In addition to retail, this generally includes healthcare services, restaurants, trucking and transportation, and banks and financial services.
The retail industry also has the advantage of creating online ordering and delivery options. Online delivery for restaurants is obviously booming, but retailers can also use more general delivery services like Postmates or set up other methods for delivery or curbside pickup. Even a simple online marketplace or email exchanges can be used to facilitate sales to keep a retail business up and running until foot traffic patterns can return to normal.
How You Can Get Small Business Support Now
Other nations’ responses to the crisis, and whether their strategies result in solid economic recoveries, will help and determine our management of the outbreak and the eventual reopening of the US economy. These responses will take weeks or months to evaluate.
But there is help available to small businesses now. This is the quickest economic downturn we have seen in our lives, and there is some chance it will be the most severe. Entire industries could be decimated. Local, state, and federal leaders made the right decision to deliberately shut the economy down to avoid a more catastrophic health crisis. For many businesses, the damage could last long beyond the development of a vaccine or cure.
Your business may feel like it’s sick in a hospital bed and on life support. But the right medicine may be a short term loan, an SBA loan, or a merchant cash advance. Because just like a sick patient, your business has to survive and slowly get better in the short term before recovering to full health in the long term.