When Will Industries Rebound?

May 7, 2020 – To combat the COVID-19 pandemic, countries across the globe  started issuing ’stay-at-home’  and ‘lockdown’ orders to help flatten the curve of infection and protect their citizens. This essentially shut down all businesses and services that weren’t deemed ‘essential’. With a number of countries starting to lift restrictions and more planning to do so soon, people will be returning to work and consumers will  hopefully be getting out of the house and spending their money. As businesses reopen, the hope is that the economy recovers quickly and gets back to pre-COVID-19 levels.

While the shutdown hit all non-essential industries at the same time, the recovery is  likely to result in a diversity of recovery times depending on the sector.  To help identify when different industries might rebound from the coronavirus globally, we looked at eight sectors which we segmented into “play” and “work” based on attributes including whether they are structured/mandatory or unstructured/discretionary and the ease of social distancing.  Play sectors include hotels & restaurants, air transport, arts/entertainment/personal services, and retail & wholesale trade while work sectors include manufacturing, financial services, business services and high-tech manufacturing.

Given the large amount of uncertainty, not just surrounding the virus itself but also around the depth of the downturn and the speed of the recovery, we felt it wasn’t enough to just estimate the time to recovery based on our base case economic forecasts. Instead, we widened the analysis to look at recovery scenarios for industries under a rapid recovery, a U-shaped recovery and a worst-case scenario.  For all sectors and recovery scenarios, we estimated the number of quarters it would take to get back to pre-COVID-19  levels of global GDP from trough levels. We also estimate how long each sector would take to get back to pre-Great Financial Crisis levels of growth.

What we found was that sectors associated with discretionary activities — “play” — may experience deeper contractions and lengthier returns to pre-COVID-19 levels than “work” sectors. For these sectors, we think the time it takes to recover may extend between six and eight quarters. Shallower contractions in growth and likely shorter recovery periods are predicted for ‘work’ sectors —between four and seven quarters — which is consistent with the duration of recovery for those sectors during the Great Financial Crisis.

The industry which proved to be an exception is manufacturing. Although it is classified as a “work” industry, we believe it may suffer deeper contractions and lengthy recovery periods as some of its large sub-sectors (i.e., autos and aerospace) may struggle longer in recovery due to the nature of the crisis and the fact that certain geographies with heavy manufacturing presence (i.e. Western Europe and China) were affected the most by the crisis.