The economy after COVID-19
Much has changed dramatically, and some of these changes will be permanent. Attention now must turn to how we navigate the post-lockdown world and plan for new opportunities and risks. The SMEs like those who partner with Livingbridge have a key role to play in driving the economic recovery.
The road so far
Unlike the global financial crisis of 2008, the COVID-19 pandemic has been “exogenous in nature rather than endogenous”, says Chris Bailey, European Strategist at Raymond James. As well as being triggered by forces outside our control, and therefore more difficult to plan for, the impact of COVID-19 has been more rapid and intense than the financial crisis a decade earlier. For example, private equity deal flow started the first quarter of 2020 in dynamic fashion, but quickly came to a grinding halt.
Several trends have already become apparent. As Sohini Praminick, Partner at OC&C Strategy Consultants said, “the recession caused by COVID-19 will be the biggest driver of consumption change”.
Sohini Praminick believes two trends that will stick, are more local shopping and domestic travel. That will also feed into support for sustainability and social responsibility, with countries pushing for a greener economic recovery.
Digital sales have benefited, and new routines have been established as people have been forced to buy online. A good deal of that shift in behaviour will remain post-lockdown.
There will also be winners and losers within each sector; consumers will be seeking value for money but also keen to treat themselves by going to the premium end for certain products and experiences.
Assuming data from the last three recessions holds true this time, sectors such as tobacco and alcohol sectors, for instance, are likely to come out in similar shape.
Navigating a new business landscape
Businesses are being forced into making decisions – such as whether to own or rent space or carry out jobs internally or externally – more rapidly than ever before.
As Nigel Stirk, Partner at OC&C Strategy Consultants highlights, “we will see demand volatility after lockdown and potentially pre-Brexit, so businesses will need the flexibility to scale down or scale up rapidly.”
Businesses must also be aware that customers will want to look for shorter-term commitments, quicker service delivery and more bespoke offers to fit their fluctuating needs. They will have to deliver these changes while coming off Government support.
However, it is not all gloom – there are opportunities to build enduring partnerships and capitalise on the new need for creativity; be that through forced experiments, new propositions, new delivery channels or new ways to collect data.
The M&A and debt market impact
“COVID-19 has cut deal volumes. Combining that with a prolonged period of being unable to accurately forecast means that we are entering a period of M&A where the biggest challenge to completing deals will be the bid-ask spread”, says Adrian Reed, Managing Director at GCA Altium. In this environment, a company’s quality of earnings, flexibility and resilience will be key for successful M&A activity.
The next round of fundraising will be the most testing, however “there is a significant amount of dry power in both private equity and private debt to sustain M&A activity”, according to Simon Chambers, Managing Director – Debt Advisory at GCA Altium.
Policy landscape in the UK
UK voters, as evidenced by the last three general elections, have increasingly focused on what the Government can do for them on a personal level, over systematic change. According to John Gray, Partner at Finsbury, this is crucial to how we will see the crisis being dealt with.
This time, unlike during the financial crisis, the Government will be unable to impose the same austerity measures, as that risks alienating voters. It also faces a reckoning on how it has handled the crisis and will be closely scrutinised on how it works to rebuild the UK.
As Chris Bailey points out, “there is no such thing as free lunch”. Over the medium term, we are likely to see stagflation, resulting in Government initiatives to encourage growth and incentivise entrepreneurs and businesses across the country.
Ultimately, we need to get to the point where consumers are happy to consume, entrepreneurs are happy to take risks, and businesses are keen to invest. It’s a game of rebuilding sustainable trust.
Early signs from China provide some hope, in that we have seen a lopsided V shaped recovery aided by Government stimulus schemes akin to those in the UK, as well as effective virus control measures.
Human ingenuity is key ingredient shared by those entrepreneurs and smart businesses that will really make a difference. To start recovering, we must back ourselves, stay confident, support good ideas, and ultimately, stay positive.
If you’d like more information on the impacts of COVID-19 on the economy, or anything else relating to Livingbridge, please get in touch via email on london@livingbridge.com.