It’s not hidden that Coronavirus break has brought economies around the world to halt. We can really see it around us — restaurants closed, transportation forbidden, stores opening for a limited time. Manufacturing and production is on halt. Overall, businesses have come to a still. It’s not surprising that international bodies are already predicting that economy of countries will decline in the coming few months.
For instance, Goldman Sachs predicts that the U.S. economy will decline by 24 percent between April and June. It also predicts that unemployment in the country will rise to nine percent. Capital Economics predicts that in the second quarter the U.S. economy will decline by 40 percent compared to year earlier and unemployment will increase to 12 percent. No doubt, this has taken business strategists for a ride.
Amid this crisis and economic mayhem, a pressing concern is — is the world economy headed toward a recession or a depression?
Recession, as in the Great Recession of 2007, and depression, as in the Great Depression of 1929. The U.S. economy has faced both. If words are to be believed, the global economy is headed towards a depression more severe than the Great Depression of 1929.
What is a recession and a depression?
Typically, a recession is defined as negative growth in the economy for two consecutive quarters or straight six months. Depression, on the other hand, is more severe and lasts for years. NBER (National Bureau of Economic Research), in the U.S., defines recession as decline in economic activity which can last for more than a few months. It is reflected in real GDP, real income, employment, industrial production, and whole-sale retail sales.
The takeaway is — contrary to popular beliefs, recessions can last for years. World’s infamous recession like the U.S Great Recession started in December 2007 and ended in June 2009. Similarly, Nigeria’s recession started in 2016 and the economy revived in 2017.
Depression doesn’t have a concrete definition. It is simply stated as a prolonged period of economic downturn which can last for years. The Great Depression, for instance, started in 1921 and emerged in 1939. It took 10 years for the economy to revive.
Is coronavirus pandemic leading to recession or depression?
Many economists around the world have come to the view that we are leading ourselves into a recession. But many optimists are of the view that economic activity will pick up in the second half of the year with the help of government stimulus packages during the peak scenario of coronavirus cases.
Apart from this, many analysts are comparing the Great Depression of 1929 with the current decline in economic activity because of its suddenness.
Do world economists have the same view?
Unfortunately, Economists Nouriel Roubini, who is also known for predicting the financial crisis of 2008 believes that countries affected with coronavirus pandemic have fallen short on containing the outbreak. With the amount of relief packages served by governments, it is unlikely to revive the economy back for a timely recovery. He says,” the risk of a new Great depression, or worse than original depression — a Greater depression — is rising day by day.
Federal Reserve Chairman Ben Bernanke, who is known for stewarding the U.S. economy through the financial crisis of 2008 feels that current outbreak is “much closer to a major snowstorm or a natural disaster than it is to a classic 1930s-style depression”.
What should business strategists should do in these times?
After the financial crisis of 2008, coronavirus outbreak is the perhaps the biggest management challenge for leaders. No doubt, the coronavirus has thrown businesses in a turmoil and left organization leaders to craft a business strategy to navigate through this testing times.
While crisis is never better, when compared to the 2008 crisis, the current situation has a positive difference to it. Steven Wunker, Author of Costovation, says “financial crisis had an uneven and gradual trajectory. The current tragedy should have four specific phases”.
He describes the phases as:
- Awaiting the major impact — The economy shuts down and business and household will use financial coping mechanisms to get by.
- Withstanding the initial impact — Businesses run out of money and household struggle to make basic ends meet.
- Returning to Normalcy — Sickness wears off due to increasing immunity among people or use of medicine. People return to work due to confidence or necessity.
- Sort out new industry dynamics — Behavior of both customers and businesses change, the nature of competition for businesses will shift.
To create a robust business strategy, leaders will need to dis-aggregate uncertainties associated with the organization. Parse uncertainties along each phase. According to Steve Wunker, an organization will be faced with following uncertainties —
- Known knowns — These are commonly believed tenets of your business. However, this the time when you should challenge them. Is telesales is still a better option over channel sales?
- Unknown knowns — People on the front-line will know the ground reality better than people in the executive suite. Meet your front-line staff to uncover insights.
- Known unknowns — There are widely-held beliefs about business for times like this. However, don’t blindly follow them. Do you market research to gauge impact on business and see if you can cater to them with diligent market research.
- Unknown Unknowns — Times like these will throw surprises at you. War-gaming and building industry specific scenarios as to your competitors will react will prepare you for future.
By dis-aggregating uncertainties along each phase, it would make it easier for business strategists to think strategically and create plans to easily navigate the crisis. Times ahead are filled with uncertainties and surprises. Businesses, however, don’t have to fall victim to them. By parsing issues and phase alongside each other, strategy leaders can come up with a business strategy to easily navigate through this crisis.