Economic conditions amid the coronavirus outbreak..

By Matt Dallisson, 27/03/2020

In McKinsey’s newest survey on economic conditions, conducted during the first week of March, the coronavirus outbreak overshadowed all other threats to the global economy. ¹ 1. The online survey was in the field from March 2 to March 6, 2020, and garnered responses from 1,152 participants representing the full range of regions, industries, company sizes, functional specialties, and tenures. To adjust for differences in response rates, the data are weighted by the contribution of each respondent’s nation to global GDP. Nearly nine in ten executives identified the outbreak as a threat to global growth—more than for any other factor. Reflecting on conditions at the time, most respon­dents said that the outbreak was also a top risk to their national economies and to their companies’ growth over the next year. Since then, the public-health situation has become more dire: the World Health Organization declared the outbreak a pandemic, the global count of confirmed cases and deaths has risen, and authorities in many countries have taken emergency measures to limit the spread of the disease. ² 2. Matt Craven, Linda Liu, Mihir Mysore, and Matt Wilson, “COVID-19: Implications for business,” March 2020.

The progression of the outbreak has surely influenced executives’ views on the economy, but even the survey results from several weeks ago indicate the extent of their worries. Respondents already expected a stifled global economy in the months ahead. When asked about their home economies’ prospects, the deepest concerns came from respondents in the Asia–Pacific region—not surprising given the timing and spread of the outbreak.

Furthermore, the results show that many respondents expect their companies to change their globalization strategies and foresee new hurdles to investments. Private-sector respondents were more likely than in previous surveys to say that their companies will alter supply chains in the next few years and that the risk of an economic downturn was keeping their organizations from investing in attractive opportunities. However, a plurality of respondents continued to predict a positive near-term outlook for their companies.

Concerns over the coronavirus outbreak’s impact loom

In early March, most respondents expected the spread of the coronavirus to be one of the biggest risks to growth for the global economy, their national economies, and their organizations in the months ahead. Eighty-six percent of respondents said the outbreak is a pressing threat to global economic growth over the next year (Exhibit 1). Con­cern about the pandemic, which we first asked about in this quarter’s survey, was most pronounced in the Asia–Pacific region, where 96 percent of respondents said it was a top threat.

Uneasy views of the global economy and conditions at home

After a more favorable turn at the end of 2019, sentiment on the state of the global economy soured in early March. Just 6 percent of all respondents said conditions improved over the past six months, while 85 percent said they had worsened (Exhibit 3). What’s more, the share reporting a substantial decline in the global economy has grown over the past six months.

Likewise, respondents were leery about the global economy’s prospects. Fifty-eight percent said they expect conditions to decline in the next six months—more than twice the share that predicted an improvement. Overall, three-quarters said they expect the global growth rate to slow down.

Respondents remained more skeptical than hopeful about current and future conditions in their home economies. Overall, 62 percent said their national economies had declined over the past six months, compared with 52 percent six months ago. Respon­dents in all regions were more likely to report declining than improving conditions, which was also true six months ago. Those in the Asia–Pacific and developing markets were particularly downbeat compared with their peers in other regions .

Across regions, respondents in developed economies were more likely than those in emerging ones to expect worsening conditions. Those in the Asia–Pacific and Europe expressed the most pessimism. Respondents in India and Latin America—who were less likely than those elsewhere to see the virus outbreak as a risk to their economies ⁵ 5. India and Latin America each had fewer than 50 reported cases of COVID-19 in early March, when the survey was in the field. See Coronavirus disease 2019 (COVID-19) situation report 46, World Health Organization, March 6, 2020, who.int. —were less somber. These sentiments were consistent with the timing and spread of the virus.

Changes to globalization strategies

In light of the economic risks respondents saw in early March, those from large multinational companies said their organizations were examining globalization strategies and would make changes in coming years. ⁶ 6. These questions were asked only of respondents working at companies with average annual revenues of $500 million or more, of which more than 20 percent come from outside the headquarters country; n = 274. The globalization strategies of companies include their investment plans, sourcing, supply-chain management, and global footprint. Eighty-seven percent of respondents said their companies will alter globalization strategies in the next three years. Respondents were more likely than they were in December to say that the strategic changes at their companies will include diversifying supply chains across countries and sourcing more from regional supply chains (Exhibit 6).

Even so, at the time the survey was conducted, respondents remained more likely to expect customer demand to increase than to decrease (39 percent versus 28 percent), as has been true for more than a decade. A plurality of respondents also expected their companies’ profits to increase in the months ahead—although the 42 percent of respondents who gave that answer was the smallest share since June 2009.