The coronavirus, the economy and the road ahead for businesses
Amid ongoing challenges, companies prepare to thrive in a remade world
5 minute read
- The coronavirus pandemic is accelerating the pace of change for businesses in every industry
- Fundamentals such as liquidity, cash flow and risk management are keys to preparing for recovery
- Companies must rethink everything from supply chains to remote work to their digital presence
The coronavirus pandemic did more than take a good economy and turn it upside down; it changed things so fundamentally that the pre-virus world already feels like ancient history.
“There has never been a situation like this, where a recession has effectively been caused by a single very identifiable factor,” says Candace Browning, Head of BofA Global Research. While trillions of dollars in stimulus brought badly needed stability, it’s clear that lives and businesses will never quite be the same.
“Major crises often lead to fundamental shifts in economic and social behavior,” says Chris Hyzy, Chief Investment Officer for Bank of America Private Bank and Merrill. Beyond its devastating health effects, the pandemic will likely accelerate long-term trends toward de-globalization, technological innovation and “e-everything,” Hyzy believes.
With vast changes in store, businesses must not only shore up their financial fundamentals, but also rethink their operations to prepare for that new world.
Toward a recovery
Because the downturn resulted from a health crisis rather than an economic one, the timing and trajectory of an economic rebound is closely tied to the development of a vaccine and treatments for the disease.
It’s clear that the path of the virus and the economic recovery are closely intertwined. Until the country manages to get the virus under control, the recovery is likely to be one of fits and starts.
Regional outbreaks have forced many states to pause or roll back planned reopenings, putting added economic pressure on businesses and individuals. Yet ultimately, recovery is sure to happen. As Federal Reserve Chair Jerome Powell said in the course of pledging ongoing stimulus efforts, “In the long run, and even in the medium run, you wouldn’t want to bet against the American economy.”1
To prepare for those better days, businesses are looking inward and outward, examining both the current state of their companies and that of their customer bases. As they continue to prioritize the health and safety of their employees, they’re putting the lessons of the crisis to work in considering how to improve supply chains, become truly digital and adapt to a new kind of consumer with new expectations. Businesses are rethinking their continuity plans, seeking ways to preserve their cultures in a more remote landscape and weighing whether a downturn may be a good time to consider expanding for the future.
The new frontier
The world that businesses encounter in the months and years ahead will include fundamental changes. Yet those won’t come out of nowhere. “The virus will ultimately add momentum to the global themes, trends and technologies that were already in place,” says Hyzy. “New behaviors will cement themselves into daily consumer and business life, supporting new industries and an acceleration in innovation.”
That acceleration will be wide-ranging. In a major shift, global supply chains, which were already at risk of disruption because of trade disputes and other factors beyond companies’ control, will rapidly become more localized and diverse. The higher costs that come with that development, in turn, are likely to hasten a surge toward automation that can help restore profit margins.
Other sped-up and often interrelated trends will further transform businesses’ post-crisis landscape. The increasing prevalence of telemedicine, online education, mobile banking and widespread e-commerce — activities that became mainstream by necessity under stay-at-home orders — will require a modernized technology infrastructure. Health care innovation is being spurred by the race to find vaccines and treatments and to safely and effectively care for millions of unexpected patients. Similarly, an infrastructure for “smart” cities will be created to facilitate pandemic monitoring and contact tracing. And with so much more consumer and business activity happening online, cyber security will become even more essential.
The way forward
The lessons of a sudden global recession, meanwhile, are likely to accelerate another trend. Before the current crisis, the U.S. savings rate was more than 75% higher than it had been prior to the financial crisis of 2008–09. While some consumers may relieve pent-up demand as the coronavirus eases by splurging on products and experiences they couldn’t enjoy during months of isolation, others may be even more reluctant to part with their cash, instead choosing to rebuild their savings in anticipation of whatever other crises may come — but also putting pressure on business revenues.
Adjusting to this changed world will require more of the ingenuity and resilience that businesses have called upon in the current crisis. In the months ahead, companies will have to pay special attention to fundamentals such as liquidity, cash flow and risk management. They’ll have key decisions to make about remote work, automation and where the market for their products or services stands.
Even as some markets and industries undergo transformations, others will position themselves to respond to emerging opportunities. For example, further shifts to e-commerce will generate enormous amounts of new data, and companies will step up to analyze it and put it to use. Looking to rebuild and expand their markets, businesses may shift their attention to a post-millennial generation of tech-savvy consumers. And although many challenges remain, there’s little doubt that businesses will meet them and prevail.
- Business continuity
- Markets & economy
Candace Browning, Head of BofA Global Research
Chris Hyzy, Chief Investment Officer, Bank of America Private Bank and Merrill
Michelle Meyer, Head of U.S. Economics, BofA Global Research