From a US standpoint, no matter how experts look at it, the pandemic has created an economic nightmare scenario. But in Asia there may be glimmers of hope.
The pandemic has ravaged the global economy and as it lingers, offers little hope of a V-shaped recovery when it eases. It is therefore understandable that the economic prognosis, viewed from that trough of despair, looks pretty ugly. However, the perspectives of several CFOs in Asia participating in a NeuGroup virtual meeting, revealed some improvement in business sentiment in the region.
To be sure, no one is under any illusions that the global economy has not fallen off a cliff and will struggle mightily to get back to something resembling growth and normalcy. In the virtual meeting, a capital markets strategist from a bank put into context what the US will face in the aftermath.
- In his presentation, this banker said he was more bearish than most observers. He said the “economics of stoppage is not well understood” and therefore the outlook to plan for may need to be more bearish than the baseline consensus. For example, he pointed out that S&P had forecasted earnings at plus-10% just two months ago; the consensus is now 25%-33% declines for 2020. This shows how the virus has begun to hollow out demand.
Here are some other of his observations:
- This is a “bottom up” crisis, particularly in the US where 30 million small businesses employ 85% of the labor force. What’s more, many of these jobs are not coming back. This will hobble an economic recovery. It will be gradual and slow, resembling a Nike swoosh recovery vs. a V-shaped one.
- Discretionary spending will be down 60%-90%. That’s due to the high transmission rate of the virus, which leads to more isolation which in turn “ruins” discretionary spending. Transmission is more important than the focus on mortality, he says. Ultimately the economic impact will align with the virus’s impact on public health. The transmission factor makes the virus more efficient, more lethal and more of a risk.
- The Southern hemisphere will continue this transmission risk through the winter and increase the likelihood of a second wave in the fall for the northern hemisphere.
- Overlaid on this is the oil price capitulation. The banker said this by itself would be a massive global event were it not for the crisis.
- The depth of the global recession will be a second economic headwind for China.
Some light. Despite the doom and gloom, treasurers in Asia see some normalcy returning, albeit amid plenty of concerns. This was revealed in the virtual meeting’s breakouts, which highlighted those bright spots and anxieties:
- At the micro level, member companies have seen a V-shape recovery for many business lines, all driven by the reopening of China.
- The appetite to invest in China remains.
- People have to feel safe to participate in economic activity; and they feel safe returning to work now. Note: in a NeuGroup COVID-19 call for heads of internal audit, several members confirmed that workers and shoppers in Asia were feeling safe enough to return to work and shops.
- One concern was supply chain financing; members reported rising prices as bank appetite falls and the cost of funds for these programs increases.
- More concern about the impact of the crisis on banks. Members report seeing a diverse reaction with some banks restricting credit while others are increasing offerings, depending on who the company is and where.
