Coping after COVID-19
7 May 2020 – With COVID-19 causing unprecedented shock to our lives and livelihoods, we find ourselves at a scramble figuring how to re-emerge from the trauma of the crisis and the global economic slowdown, Asia Society Philippines and McKinsey & Company, together, hosted an online discussion on “The Imperative of Our Time: Safeguarding our Lives and Livelihoods and the Return to the Next Normal” to discuss the economic implications of the virus to the Philippines and the steps in returning to “normal.”
Over 160 people tuned in on Zoom to listen to the insights by McKinsey experts, Kristine Romano, the Managing Partner of McKinsey & Company Philippines and Asia Society PH trustee, and Rebecca Yeoh, lead of McKinsey’s efforts to study COVID-19’s macroeconomic impacts for ASEAN countries; moderated by Coco Alcuaz, Executive Director of Makati Business Club.
The webinar opened with Doris Magsaysay-Ho, chair of Asia Society Philippines, welcoming the guests and sharing a quote, “In a rush to return to normal, use this time to consider which parts of normal are worth rushing back to.”
Economy dips before it recovers
Kristine Romano, Managing Partner of McKinsey Philippines was first to share the immediate impacts of COVID-19 on the economy, especially the Philippines. With the current crisis, Romano shared, “While we’re trying to flatten the curve, we do know that there is a corresponding impact on the economy. As we lockdown shops and schools, economy will dip before it recovers.”
The question now raises that while it is paramount that we safeguard lives, how do also ensure that we are safeguarding livelihoods? As the overall economy is hit with the ongoing crisis, the industries considered non essentials will be hit harder.
“[Economic contraction] is driven by the two factors. One is tourism, the more reliant you are to tourism, the larger the contraction. And second, the richer the population, the bigger the contraction. Because what is going to happen in this crisis is discretionary spending is going to go down,” Romano said.
Even though the Philippines has a consumer-driven economy, a lot of the consumption is still limited to basics and essentials, this in a way lessens the hit to the country’s economy. This remains true as a trend in food and at-home entertainment goes up, while other discretionary items such as air travel, go down.
Recovery for these industries will now depend on two parameters— effectivity of public health responses in containing the virus, and the sufficiency of economic interventions by the government.
Reopening Economies in the New Normal
With the end of the crisis uncertain, economies need to start thinking of entering the “new normal.” Rebecca Yeoh, Associate Partner at McKinsey & Company Singapore, provided insights on when, what and how economies would be reactivated safely without increasing the spread of the virus.
Yeoh shares that economies can start opening again when they have the health care capacity to mitigate the virus spread and contain it. She added, “[states] should decide when to reopen depending on how ready the state is to put in place protocols, plans, and restrictions that will allow social distancing, work-from-home measures, and the use of mass transit without putting people at risk.”
Countries can also start looking into three frameworks of which to unlock after its economic lockdown. First is the sector regional axis, in which the country will be segmented by region and by sector based on economic priority and healthcare risk. Second is the population axis in which, the immune and low-risk population are able to reenter the economy while the high-risk remain in quarantine. Another axis presented was from Weizmann Institute, the timing axis, where the economy opens up for a small period of time before closing again for another period.
Mostly, countries will be prioritizing sectors that are economically important like the essential services. Next to open would be the sectors critical to the economic development of the country, which will vary between countries. But last to open would be the entertainment and life sectors, such as cinemas.
She highlighted, “Reopening a sector is often not enough to bring it fully back to life.” There will be a slow ramp up for demand to be back after the crisis. In addition, there is an ongoing disruption to global supply chains that affects countries.
Ultimately, should the countries decide to reopen, they should do it with the proper protocols in place that will ensure the population’s safety—such as social distancing, sufficient testing capacity, and continued support for the healthcare workers in mitigating COVID-19. In addition, countries could provide targeted support to the vulnerable populations to bring a boost in economy. Lastly, to navigate the crisis better, countries should consider setting aside capacity focused on the future, not just on the present, to plan ahead for other scenarios that may occur and to plan in detail for the return after this crisis.
Not just a health crisis but a global economic crisis
One thing to remember is that this is an isolated crisis but a global one. COVID-19 is considered to be one of the most devastating health crises in many years, with thousands of people succumbing to the virus. More than that, this pandemic is a global economic crisis which shocked markets into downfall and put countries in lockdowns and closed borders.
Kristine Romano shared that this crisis led to “[Economic contractions] we haven’t seen since World War 2.” It will take a lot of effort globally to build the economy back up. There are still a lot of factors to consider before we fully know the impact this crisis will do to sectors. As COVID-19 is an ongoing crisis, no one can truly tell the definitive impact of it to the economy as the data evolves every day. It ultimately depends on the containment or continuous virus spread and the success or failure of economic intervention by governments.
“The winners coming out of COVID are those who are already thinking about reimagining what are these new habits that we can take advantage of as this is one of the most disruptive things we have seen” Romano said. “There’s opportunity to reform industries, structures, and competitive environment depending again on how [the crisis] pans out,” she added.
The Imperative of Our Time: Safeguarding our Lives and Livelihoods and the Return to the Next Normal is the first webinar hosted together by Asia Society Philippines and McKinsey & Company, supported by the Asia Society Board of Trustees, Doris Magsaysay-Ho, Fernando Zobel de Ayala, Cedie Lopez-Vargas and Kristine Romano.