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Analytical framework for navigating COVID-19 impacts

DuckerFrontier, May 21, 2020

Most governments across the globe have applied “the hammer”  against COVID-19 in an attempt to curb its dramatic impacts, and will now have to “dance” with the virus during the reopening phase. Managing Director Pablo Gonzalez Alonso has adapted Tomás Pueyo’s unique framework Coronavirus: The Hammer and the Dance to differentiate between countries that will be more effective at keeping COVID-19 under control from those that are likely to struggle as they try to limit virus spread, reducing the need for and cost of social distancing measures (SDMs).

How governments “dance” with COVID-19 will determine the need for and economic cost of social distancing measures (SDMs), but it is only one of the four variables that will explain economic trajectory over the next few years. We see three other factors that companies should take into account as they try to calculate the timing and strength of market rebound:

  • Government stimulus efforts during and after SDMs
  • Timing of treatment and vaccine
  • Political and social stability

Is your local government doing a fast dance or a slow dance?

Early reaction to prevent COVID-19 from entering into the country and to limit its spread, good information about who has the virus, who might have the virus, and who might have developed immunity against it, healthcare infrastructure and resources, and endorsement from local authorities all contribute to a country’s response effectiveness.

Does your government have the fiscal space and liquidity for economic stimulus?

How governments finance “the dance” will influence growth, and not just in the short run. SDMs are putting significant strain on corporate and household finances, forcing governments to step in to avoid economic collapse. Our experts recommend monitoring four key variables as it pertains to assessing structural damage in the economy:

  • Number of bankruptcies: level of destruction of the economic fabric
  • Labor participation: availability/supply of jobs in the economy
  • Erosion of private and public savings: capacity of surviving companies to invest, of households to spend, and of governments to intervene
  • Business and consumer confidence

When will be a treatment and/or a vaccine be ready for massive distribution?

Although significant progress has been made to accelerate the development of an effective treatment and a vaccine against COVID-19, companies should be very cautious about pricing any upside into their revenue growth targets until they have view as to how quickly a treatment and a vaccine could be made available for sick patients and the overall population in their countries. Production capacity for vaccines and different medical treatments varies greatly across countries, and it is more likely than not that patients and citizens in developed markets will get much quicker and widespread access to a treatment and/or a vaccine than those living in emerging markets.

What will be the political cost or gain from the management of the pandemic and ensuing economic crisis?

How effective governments are at controlling COVID-19, managing liquidity issues in the system, and ensuring quick and widespread access to an eventual treatment and/or a vaccine, will dictate how quickly and strongly their countries will emerge from this pandemic. Failing at any of these will weaken short term economic performance and will have political consequences that will further delay economic recovery.

As companies plan for the months ahead they should take an active role to proactively engage with governments, the private sector, academia, and civil society; not just to make the markets properly “dance” with COVID-19, but also to shape how the post-pandemic new “normal” will look. This will require going back to the drawing board and taking a holistic approach to scenario planning that considers different political, economic, social, technological, and legal outcomes coming out of COVID-19, and how those outcomes could affect their business. Finally, companies should not overlook the importance of realigning their organizations on new strategic mandates if any and continuing to rely on sound contingency planning processes to account for market surprises.

Our global experts are closely monitoring COVID-19’s impact on the global economy and business environment. View our latest coverage on DuckerFrontier’s COVID-19 Resource Hub and subscribe to The Lens, our weekly newsletter covering the latest global events impacting your business. Contact us today to speak with an expert directly.

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