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Navdeep Arora, Former Partner in McKinsey explains Covid-19 impact on Global Economy

Since the COVID-19 outbreak was first diagnosed, it has spread to over 190 countries with 5Mn confirmed cases. But there is more to the impact of this pandemic. The pandemic is having a noticeable impact on global economic growth. The full impact will not be known until the effects of the pandemic peak. This article provides an overview of the impact to multiple areas of life and society and its co-relation to global economy.

The first and foremost impact will be seen on individuals as recessions, depressions and increased unemployment. The next 12 months will experience unprecedented recessionary pressures on the global economy. Corporate and government debt is already increasing at a fast pace with global markets (bonds, equities and commodities) continue to be unstable for some time. As more companies (of all sizes) begin to feel the pressures of Covid-19, we expect to see a sharp increase in unemployment. According to research by NIESR, unemployment in the UK is expect to rise to over 6 million by the end of May (from 1.34m pre crisis) to take the effective unemployment rate to ~20% (more than 5x its current rate of 3.9%). Since the beginning of the crisis, over 26m Americans have filed new unemployment claims – wiping out all employment gains over the last 11 years. This will lead to a global economic depression and makes a ‘v-shaped’ economic recovery less likely.

The second impact will be visible with shift in businesses and governments mindset. There will reduction in global travel (business and personal) with increase in employees working from home. 25-33% of people now remote working won’t go back to work.

    • There will be higher expectations from consumers on digital capabilities and infrastructure
    • The virtualization of the way we live, work, shop and interact directly affects the future demand for products and services, and people skills and competencies. We will see jobs, products and competencies becoming obsolete as the virtual ways no longer require them. As a result, both companies and people will need to redefine who they are and what they offer
    • A substantial shift from importance of physical infrastructure with expensive office space in city centres likely to face a drop in demand 
    • Legacy business models will face pressure from digital alternatives – e.g. an increase in digital educational offerings and more online university courses 

The third impact will be on globalised supply chains in form of its retreat.

    • We can expect to see a retreat of globalized supply chains and reductions in global trade in the aftermath of this crisis 
    • Western companies and economies will want to rely less on China-based supply chains as they recover from the impact of COVID-19
    • The trade-off will be between short term profit maximisation and longer-term risk reduction.
    • Japan has earmarked ¥243.5 billion of its record economic support package to help manufacturers shift production out of China as the coronavirus pandemic disrupts supply chains between the major trading partners
    • Governments will be pushing to become self dependent for essentials such as PPE and food security 

The fourth impact will be on privacy infringements.

    • For governments looking to monitor their citizens more closely, and companies looking to get monetise by doing the same, it would be hard to imagine a more perfect crisis than a global pandemic
    • In China today, drones search for people without facemasks; when they are found, the drones’ built-in speakers broadcast warnings from police
    • Germany, Austria, Italy and Belgium are all using data – anonymised, for now – from major telecommunications companies to track people’s movement
    • In Israel, the national security agency is now allowed to access infected individual’s phone records

The pandemic will bring with it behavioural shifts in individuals, businesses, governments and economies.

There is historical precedent to support the fact that Covid-19 will bring major shifts, as we learn from the global flu epidemic of 1918 helped create national health services in many European countries. The twinned crises of the Great Depression and the second world war set the stage for the modern welfare state. 

It will be interesting to see what shifts this pandemic brings to the human race and to the global economy.

About Navdeep Arora

Navdeep Arora is a seasoned strategist, advisor, and investor in Insurance and Financial Services. Navdeep’s particular focus and areas of expertise are Insurance Strategy and Innovation. He works across the Insurance ecosystem including Insurance companies, data and technology providers, strategic investors, and start-ups in the InsurTech space.

Formerly, Navdeep Arora was a Senior Partner with McKinsey & Company (16 years), and a Partner/Global Head of Insurance Strategy with KPMG (3 years). Navdeep’s educational qualifications include a Bachelor’s and a Master’s degrees in Engineering, and an MBA from Harvard University.

Connect with Navdeep Arora 

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