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COVID-19: Briefing note: June 4, 2020
This has been an extremely painful time for communities across the United States and beyond, even as the pandemic continues to take its toll. We are amplifying our commitment to do our part to ensure that black lives are spoken for and valued, both inside our firm and beyond. Our ongoing research on the US racial-wealth gap and on diversity and inclusion is intended to clarify some of the underlying issues and potential paths forward.
Research we published in April called out the disproportionate effects of COVID-19 on black Americans, who are almost twice as likely to live in the counties where the risk to health and economic activity is highest if and when contagion strikes (exhibit). Many of these places were the scene of this week’s anguished protests.
Our newest research looks at the pandemic’s effects on US minority-owned small businesses. Vulnerable even before the pandemic, it has struck them disproportionately hard. Many of them are in the industries most susceptible to health and economic problems, such as accommodations and food services, retail, and healthcare. Owners are innovating and staying flexible, helping their communities to cope with the crisis. But these businesses are highly vulnerable; they need help from the private, public, and social sectors.
Similar dynamics afflict US minority students. Previous McKinsey research has demonstrated the costs of a sizable achievement gap between white students and black and Hispanic ones. Our latest research, published this week, finds that the pandemic not only threatens to widen the achievement gap but also poses problems for all learners. The hurt could last a lifetime.
People of color are vulnerable to yet another effect of the COVID-19 crisis as it affects large companies. Previous crises show there is a very real risk that as companies adapt to new ways of working, inclusion and diversity may unintentionally recede as strategic priorities. Yet as our latest report on inclusion and diversity argues, that would place companies at a disadvantage: they could not only face a backlash from customers and talent now but also, down the line, fail to better position themselves for growth and renewal.
McKinsey continues to research many aspects of leadership through the crisis. This week, we reported on dozens of our new research efforts, including the emerging themes dominating boardrooms; the post-COVID-19 future for US rail and trucking companies; the lessons learned from Asia’s manufacturing and supply chains; a new approach to tracking demand for travel; the potential for telehealth; and the safety protocols that hospitals, grocery stores, and others have used to stay open.
Our latest briefing pack (June 1) details, across 94 pages, the current economic and epidemiological situation, how to transition to the next normal, and planning across multiple horizons. Please also see the full collection of content, visual insights from our “chart of the day,” a curated collection of our first 100 coronavirus articles, and our suite of tools to help leaders respond to the pandemic.
COVID-19: Briefing note, May 27, 2020
New insights on consumer sentiment and the return to work.
The Memorial Day weekend in the United States, always a somber occasion and never more so than this year, seemed to mark a turning point in the COVID-19 crisis. As spring turned to summer, many US regions started to reopen, as did others in Europe, Latin America, and Asia. Despite ongoing public-health concerns, the desire to spend and shop is palpable. This week, McKinsey published new surveys of consumers in Argentina, Australia, Brazil, Central America, and the United States, detailing the strength of the consumer urge in each country. The outlook is brighter. Consumers are less anxious and depressed about health concerns. Business executives are a bit more optimistic this month than last. And our new surveys of global B2B buyers and those in Asia and Europe suggest that confidence is holding firm.
That said, the picture these surveys paint is complex. In a sense, the world is turning from “resilience” to “return”—the third of the five pandemic elements we sketched out in late March. To get back to business, many companies are running spreadsheets to see how many people spaced six feet apart will fit in an office, planning one-way paths through the workplace, and figuring out adaptations to restrooms, lunchrooms, and entrances. All of those are critical tasks, but they are not enough. What’s needed is a return “muscle”: an enterprise-wide ability to absorb uncertainty and incorporate lessons into the operating model quickly.
One of the skills that will help with that urgent need is surely analytics, widely recognized for its problem-solving and predictive prowess, which is becoming a modern-day sextant to navigate the COVID-19 crisis. Analytics can help tackle numerous urgent tasks facing businesses today: forecasting demand, identifying potential supply-chain disruptions, targeting support services to at-risk workers, and determining the effectiveness of crisis-intervention strategies, to name a few.
Also on that list: improving the experience of customers, many of them frightened, some jobless, and all of them deeply uncertain about the next normal. To renew and refresh their connections to the people they serve, companies need to recognize what’s happening now, and respond in three ways: digital excellence, safe and contactless engagement, and dynamic customer insights.
These are just a few of the issues McKinsey has researched and written about in recent days to help companies and countries lead through the crisis. Please see the full collection of content, visual insights from our “chart of the day,” a curated collection of our first 100 coronavirus articles, and our suite of tools to help leaders respond to the coronavirus outbreak.
COVID-19: Briefing note, May 13, 2020
Emerging evidence provides some tantalizing glimpses into the epidemiology of the global pandemic.
By Matt Craven, Mihir Mysore, and Matthew Wilson
As the reopening of economies continues across much of Europe and North America, it’s worth taking stock of the epidemiological situation and trends that will define the months ahead. At the time of this writing, the official counts of cases and deaths from COVID-19 have passed four million and 280,000, respectively. Recent studies have made increasingly clear that each of these figures is a significant underestimate. Population antibody surveys suggest that official counts are underestimating the true number of cases by a factor of five or more (although in several cases the methodology has been called into question) (Exhibit 1).
Comparisons of 2020 and 2019 mortality rates show that substantially more people are dying this year, although we don’t know how much of this is due to missed deaths from COVID-19 rather than excess mortality from other causes (Exhibit 2).
The pandemic and public health—five trends to watch
With lives at stake, a thoughtful approach is paramount. Here are the five emerging trends that private-sector leaders need to monitor.
There are still many places where the epidemic is getting worse
While much of the media narrative is about reopening, many countries, including several of the largest emerging economies, are still on the “upslope” of the epidemic, with daily case counts increasing (Exhibit 3). While an increasing number of countries and regions have proven that they can use lockdowns to drive a reduction in cases, to date, we have few examples of success outside higher-income countries. The next few weeks will be critical tests of our ability to “bend the curve” in more countries with varying contexts and healthcare capacity. In some of these countries, the absolute number of deaths is relatively low; interventions against COVID-19 will need to be viewed through the lens of both lives and livelihoods.
Reopening is a massive natural experiment—make sure you learn from it
We have never before attempted to shut down the modern global economy, much less reopen it in the setting of an ongoing pandemic. We have a few examples of strategies that seem to work better, or worse, but none of us know with any certainty the best actions. Even places with strong initial responses like Hong Kong and Singapore have faced challenges as they reopen. 1 1. Jill Terreri Ramos, “Fact-check: Did countries that reopened see a spike in coronavirus?,” Austin American-Statesman, April 20, 2020, statesman.com; Suzanne Sataline, “Covid-19’s resurgence in Hong Kong holds a lesson: Defeating it demands persistence,” Statnews, March 26, 2020, statnews.com; Scott Neuman, “Emergency declared in Japanese prefecture hit by 2nd wave of coronavirus infections,” NPR, April 13, 2020, npr.org; “Japan’s Abe extends state of emergency to May 31,” Al Jazeera, May 4, 2020, Aljazeera.com; Abigail Leonard, “This Japanese island lifted its coronavirus lockdown too soon and became a warning to the world,” Time, April 24, 2020, time.com; “AP photos: Beijing slowly reopens amid falling virus cases,” Associated Press, March 25, 2020, ap.com; Philip Oltermann, “Germans urged to stay at home amid fears Covid-19 infection rate is rising again,” Guardian, April 28, 2020; theguardian.com; Adam Rogers, “The Asian countries that beat Covid-19 have to do it again,” Wired, April 6, 2020; wired.com. China has also seen an increase in cases in the past few days. 2 2. “China reports rise in Covid-19 cases, Beijing calls for vigilance,” France 24, May 11, 2020, france24.com.
In the United States, there is only a loose correlation between disease prevalence and plans for reopening. States with more cases generally plan to reopen later, but there are exceptions.
A similar point can be made about businesses’ plans to reopen. Companies are planning different approaches, even based on the same underlying fact base. This implies that leaders across the public and private sectors should build learning and adaptation into their reopening plans from the start. Relevant lessons might come from other geographies, other sectors, or from peers and competitors. Leaders should be prepared to incorporate new information and alter their approaches, either incrementally or radically, as new information becomes available.
Resurgence seems to be not a question of if but when, where, and how bad. Many experts are focused on a potential second wave of COVID-19 in the northern hemisphere this autumn. 3 3. Lena H. Sun, “CDC director warns second wave of coronavirus is likely to be even more devastating,” Washington Post, April 21, 2020, washingtonpost.com. This is certainly possible. But focusing on the risks of autumn and winter causes us to look past the summer, which is risky because it is sooner and because it is when many jurisdictions will be reopening and testing.
R is important, but so is the absolute number of new cases
Over the past few months, many have become more familiar with epidemiological concepts like the reproduction number (R) of a virus. R defines the transmissibility of a pathogen, as measured by the average number of people to whom each infected person transmits. R is a measure of change; it tells us how fast the epidemic will expand or shrink. Values greater than one define a growing epidemic, while those less than one define a shrinking one.
R has been getting a lot of attention, for example, in defining the packages of interventions that can yield R<1 in a given setting. But the absolute number of cases is also important. Imagine two cities, each with an R of 0.9, implying a slightly declining epidemic. But one of the cities has 1,000 new cases per day and the other has ten. The former faces a far higher risk in reopening than the latter.
In practice, we are seeing countries and regions take divergent approaches to this question (Exhibit 4). Hubei Province in China waited until reported cases were near zero to reopen, whereas Italy and Spain took the first steps to reopening with daily case counts at more than 1,000. Every location needs to balance public-health and economic imperatives; we can’t say which approach is better, but we are likely to learn more about what works in the weeks and months ahead.
It’s (still) all about testing, tracing, and targeted quarantine
Significant resources are required to run a program of testing, contact tracing, isolation, and quarantine at the required scale, but relative to the economics of lockdowns or global recession, these costs are trivial. Many countries are still far short of where they need to be on testing, and contact-tracing programs remain a patchwork. Our recent article provides more details on contact tracing. Strengthening these programs remains an urgent priority for many geographies. This point is no less important for having been made frequently.
In any country, here are the four metrics to watch in assessing the strength of test, trace, and quarantine efforts:
- Test positivity rate, which measures (imperfectly) the extent to which testing systems are capturing all cases. The World Health Organization recommends a target of less than 10 percent positivity.
- Tests per million population, a measure of the depth of testing.
- Average number of contacts identified per case, which measures how effective contact-tracing systems are at identifying and isolating the likely next generation of cases. The figure will tend to be lower in lockdown settings than when people are moving and interacting freely.
- Fraction of cases arising from contact lists, a measure of the portion of cases arising from known sources versus undetected community transmission.
An element of transmission dynamics now beginning to receive more attention is transmission within households. 4 4. Hao-Yuan Cheng, Shu-Wan Jian, and Ding-Ping Liu, “Contact tracing assessment of COVID-19 transmission dynamics in Taiwan and risk at different exposure periods before and after symptom onset,” JAMA Network, May 1, 2020, jamanetwork.com. We may need to rethink the current model of home isolation and develop modified strategies for mild and asymptomatic cases given that isolation can prove difficult for many. Any new model should of course ensure a comfortable experience for those who test positive, so that they’re strongly inclined to follow the recommended approach.
Innovation—and clinical evidence—leads to hope
The speed and scale of the R&D response to the COVID-19 outbreak is unprecedented in human history, with billions of dollars being spent and committed in pursuit of drugs, vaccines, and diagnostics for the virus. Today, there are more than 150 vaccines in the pipeline, and 200 drug candidates. On diagnostics, beyond the RT-PCR 5 5. Reverse transcriptase polymerase chain reaction. and classic lateral-flow immunoassays already in use for many viral and antibody tests, new technologies such as CRISPR 6 6. Clustered regularly interspaced short palindromic repeats. have already been granted emergency-use authorization by the US Food and Drug Administration. 7 7. For the full list, see “Emergency use authorization,” fda.gov.
The past few months have seen the launch of numerous trials in an effort to find therapies and vaccines—with some challenges from studies that are too small in size, or not randomized or controlled. As of early May, more than 1,700 trials are in progress targeting COVID-19 and related complications. More of these are randomized and controlled clinical studies—and some are starting read out results, providing evidence to support new approaches to prevent and manage COVID-19 infection and associated complications. The expert consensus is that enhanced treatments for COVID-19 will likely be available by the end of 2020; and only 12 to 18 months will likely be needed 8 8. Nicoletta Lanese, “When will a COVID-19 vaccine be ready?,” Live Science, April 2020, livescience.com. to bring a vaccine to market at sufficient scale for widespread immunization, compared with the typical five or more years. Some developers have even indicated a vaccine may be available sooner for limited use, with an emergency-use authorization for health workers issued as early as this fall. 9 9. Steve Usdin, “End of the beginning for COVID-19 vaccines,” Biocentury, May 2, 2020, biocentury.com.
Here are five areas to watch:
- The great vaccine-platform race. At the time of writing, 13 vaccines are already in clinical trials, and the full pipeline spans a massive range of platforms, including RNA, DNA, inactivated viruses, protein subunits, and virus-like particles (VLPs). The virus and viral-vector approaches are traditional; others are nascent. Each platform will start to produce data in the months ahead, starting with evidence of vaccine safety and then potentially demonstrations of immunogenicity (and even efficacy) toward the end of the year, though we still need to better understand the link between immunogenicity and correlates of protection. While having multiple platforms in development increases the likelihood of a successful vaccine, each platform has different competitors, ranging from smaller biotech companies to multinationals, as well as distinct manufacturing requirements, with implications for the scale-up of capacity.
- A more nuanced understanding of the uses of different therapeutics. The initial discussion on drugs has focused almost exclusively on repurposed antivirals and antimalarials for treatment. The 200-plus candidates currently in development cover a broad range of use cases—from postexposure to prophylaxis, and from mild and moderate to severe cases. The more than 1,700 active trials are expanding the focus from drugs that directly attack the virus to those that confer immunity and to those that target complications of COVID-19 such as cytokine-release syndrome (CRS) and, more recently, acute respiratory distress syndrome (ARDS). Labs are deploying a wide array of platforms, from repurposed antivirals (as mentioned above) to monoclonal and polyclonal antibodies to neutralize the virus to immune modulators for ARDS/cytokine storms, and even cell-therapy approaches for late-stage disease. The emergency-use authorization for remdesivir is an important milestone for COVID-19 drug development as well. In the coming months, we anticipate that a more nuanced understanding of the different use cases and the types of approaches being tested will help reduce the mortality rate of COVID-19 and also change the standard of care.
- A new normal and unrealized opportunity for data sharing. Unlike the experience with prior epidemics (including Ebola), COVID-19 has been characterized by unprecedented sharing of prepublication data, analyses, and results via medRxiv, a collaborative platform. This proliferation of information can support innovation and has been rapidly integrated into both the media and policy discussions—sometimes, however, to unfortunate effect. Looking forward, as the scientific community seeks to make meaningful interpretations of the thousands of running studies, we need to bring together the patient-level data from the hundreds of small, undersize, not-well-controlled, compassionate-use, and observational studies, in a responsible way. Meta-analyses of such studies will help us know if therapies actually work, at what dosing and clinical regimen. There are efforts underway in the ecosystem to address this—and hopefully a collaborative model emerges that could remain with us postpandemic.
- The impact of novel R&D models. Competitors are collaborating in ways never expected. 10 10. David Beier and Max G. Bronstein, “Partnership offers hope for COVID drug development,” Biocentury, May 8, 2020, biocentury.com. Companies are banding together in multilateral collaborations, some formal and some informal, to advance innovation. For example, leading plasma manufacturers are partnering in novel ways to produce a single unbranded immunoglobulin product; more than 15 pharmacos are collaborating in a COVID-19 R&D forum to advance, individually and collectively, the most promising drugs and vaccines; and decades-long competitors Sanofi and GSK are partnering on COVID-19 vaccine development. Novel master protocols, often with inspired names (such as Solidarity, Recovery, and ACTT), are being used to simultaneously test multiple drugs. 11 11. Lauren Martz, “Master protocols emerge as a critical clinical tool against COVID-19,” Biocentury, April 11, 2020, biocentury.com. Innovators are deploying novel development plans and trial designs as well; for example, Pfizer and BioNTech are simultaneously testing four vaccines in their combined Phase I/II study. These approaches are not without risk given the parallel work in traditionally sequential stage-gated processes.
- The challenge of separating the signal from the noise. With Ebola, a substantial R&D mobilization ran into difficulties recruiting patients to test all of the approaches being considered. Some of these same challenges are happening with COVID-19. Ensuring that studies are well controlled and appropriately powered will be critical to understanding what actually works. Further, data sharing will hold the key to advance our understanding and interrogation of the benefit/risk trade-off. Multiple prioritization efforts are attempting to do this but are still in the early stages. In some ways, the scale of the mobilization may be the biggest challenge.
About the authors
Matt Craven, MD, is a partner in McKinsey’s Silicon Valley office. Mihir Mysore is a partner in the Houston office. Matt Wilson is a senior partner in the New York office.
COVID-19: Briefing note, April 13, 2020
Our latest perspectives on the coronavirus pandemic.
By Matt Craven, Mihir Mysore, Shubham Singhal, and Matt Wilson
In this note, we offer some of our latest insights on the COVID-19 pandemic, starting with a survey of the current epidemiology and the five dynamics leaders need to watch: the efficacy of the surge in critical care, the expansion of testing and other traditional approaches, the development of antibody testing, the unknown nature of immunity, and a wave of innovation that might produce treatments and vaccines.
We then highlight four of our many recently published articles, each designed to help senior executives think through the challenges of restarting economies.These and many more articles are available in our collection of coronavirus thinking.
The outbreak is moving quickly, and some perspectives here may soon be out of date. This article reflects our perspective as of April 13, 2020. We will update it regularly as the crisis evolves.
COVID-19: Where we are, and where we might be heading
COVID-19 continues to spread rapidly around the world. Almost every country has reported cases, but the burden is asymmetrically distributed. In the past seven days (April 6–12), 46 percent of new confirmed cases have been reported in Europe and 39 percent in the United States. To an extent, that’s because countries are at different stages of the pandemic. Some that were effective at initial containment, such as Singapore and Hong Kong, have seen resurgence and are implementing additional measures to address it. Others, such as many countries in Western Europe, have seen the number of new cases plateau or begin to decline and are debating the right approach to reopening their economies. Some countries appear to be at the peak of infection and are urgently building surge capacity in their health systems. In other parts of the world, the number of cases is rising rapidly. Countries such as Russia and Turkey are seeing a recent acceleration. India too has experienced a significant increase in the number of cases since the beginning of April and has evolved its response strategy, including extending the nationwide lockdown.
The public-health tools and approaches to be deployed vary considerably based on this status (Exhibit 1). Measures including physical distancing, travel restrictions, effective use of personal protective equipment (PPE), testing and tracing, and healthcare surge capacity require more or less emphasis, depending on epidemic phase and local context. Local use of these measures varies considerably—physical distancing may be near-impossible in crowded urban settings, for example, and the apps and digital tools for contact tracing like those used in China may not be acceptable in other parts of the world. Another challenge is the dependencies among these measures: to take one example, the timeliness and stringency of physical distancing measures substantially influences how other tools should be deployed.
Although a consensus has emerged around the use of physical distancing to slow transmission in many high-prevalence settings, a few countries, such as Sweden, are pursuing an alternative “herd immunity” strategy focused on protecting the most vulnerable populations while using only limited distancing measures to flatten the curve for others. The goals are to maintain many aspects of economic and social life today and, over time, to develop a large enough pool of exposed people (about 70 to 80 percent) to “protect the herd.” Other countries are closely watching the outcome of this approach.
The months ahead will probably be quite volatile and dynamic. It now appears likely that some places will experience a local resurgence as restrictions are lifted and economies reopen. That will influence countries at the earliest stages. For example, Singapore has seen a resurgence mainly from imported cases, which have led to local transmission; this suggests that restrictions on international travel may continue. As China gradually reopens, the tactics it used (including group-based isolation models and setting a norm of wearing masks in the workplace) and their efficacy will inform approaches around the world. Western Europe’s experience in relaxing restrictions, and the most successful approaches there, will inform the approaches deployed in the United States.
Considering the variety of approaches in use, public understanding and consensus will evolve day by day. We will continue to find out more about the coronavirus—how it is mutating, the duration of immunity, its transmission dynamics, and so on. For example, it now appears that the virus probably won’t be highly seasonal, given the recent rapid growth in a number of hot spots in the Southern Hemisphere. But it is still possible that the arrival of summer in the Northern Hemisphere will slow transmission somewhat, as some studies in both labs and natural contexts suggest. 12 12. “Rapid expert consultation on SARS-CoV-2 survival in relation to temperature and humidity and potential for seasonality for the COVID-19 pandemic,” National Academies Press, April 7, 2020, nap.edu.
With all this in mind, we believe that leaders should closely watch five health-response dynamics in the coming weeks:
- The efficacy of the health-system surge and how it is maintained over time. Countries with rapidly increasing numbers of cases are finding ways to expand their critical-care capacity massively. Their ability to do so, and to push mortality from COVID-19 to lower levels, will not only save lives but also engender confidence in their health systems’ ability to manage a resurgence. Over time, as cases plateau and then decline, there will be questions about how long to maintain surge capacity while also guarding against resurgence. Providers will be under pressure to consider the broader context of a capacity surge; for example, in the United States, the mass cancellation of elective medical procedures and the associated financial hardship for many providers is likely to force difficult discussions about which procedures should be allowed to restart, and when. Other effects of surge capacity, on vaccine-preventable diseases and maternal and child health, will also be critical to monitor.
- The scaling of traditional public-health approaches. In parallel with the surge in critical care, countries also need to think about building surge capacity in traditional public-health approaches—disease surveillance, contact tracing, and targeted quarantines. Such a surge must build on current efforts to scale viral testing rapidly, mostly through RT-PCR 13 13. Reverse transcription-polymerase chain reaction. machines. Exhibit 2 shows the somewhat surprising relationship between testing and the number of cases—generally, countries that have tested more people have diagnosed fewer cases per thousand people. Moreover, to detect and control flare-ups quickly, widespread access to viral testing will become increasingly important as countries and cities prepare to relax distancing measures. In some countries, this testing capacity could be paired with at-scale contact tracing, with privacy-by-design embedded; and quarantine facilities to help localize hot spots and prevent a broader resurgence.
- The development of antibody testing and understanding of sero-prevalence. We have little idea how many people have been exposed to this coronavirus. One recent study in a hard-hit area of Germany showed that about 14 percent of the population has been—far from the levels of exposure required for herd immunity to emerge but higher than many had expected. 14 14. Antonio Regalado, “Blood tests show 14% of people are now immune to COVID-19 in one town in Germany,” MIT Technology Review, April 9, 2020, technologyreview.com. A lot of other studies are underway to assess the portion of the population exposed to COVID-19. If individual or herd immunity is to play a meaningful role in reopening, antibody tests to measure exposure must be widely available. While many such tests are being developed, their accuracy and availability have been challenged. The arrival of accurate, widely available antibody tests will help countries understand how close they are to achieving herd immunity and whether they can use immunity as a meaningful signal to start reopening.
- The nature of immunity. People exposed to other coronaviruses have exhibited durable immunity for several years after exposure. Everyone hopes the same holds true for the novel coronavirus, but we don’t know for sure. Emerging reports of recovered patients testing positive again on RT-PCR acute-infection tests raise questions about reactivation, as do studies in China showing very low levels of antibodies among some infected people. While it is unlikely that the duration of immunity is short, any new information about this issue would require a significant shift in strategy.
- Innovation. There has been an unprecedented burst of global pharmaceutical R&D related to COVID-19. Today, more than 130 therapeutic candidates and 80 vaccine candidates are under consideration across a range of modalities and use cases, such as treatment of severe disease and pre-exposure prophylaxis. If drugs already approved for other indications prove effective in treating COVID-19, they could be deployed most quickly, but in coming months readouts on experimental new drugs will also arrive. The massive scale-up of clinical trials—especially randomized placebo-controlled studies—will provide evidence to guide clinical decisions. Similarly, the unprecedented consortium of plasma companies generates hope that hyperimmune immunoglobulin can be developed quickly. Seven vaccines are already being tested in humans. 15 15. “COVID-19 therapies and vaccines: Clinical,” Biocentury, biocentury.com. Although at-scale production and distribution is not likely for 12 to 18 months after a successful trial, these vaccines would provide a critical element in the armamentarium against COVID-19. For all these innovations, a central challenge will be rapidly scaling up production to meet global needs.
Getting back to work: Four insights
The pandemic’s economic challenges are unprecedented. Since the crisis began, McKinsey has published more than 70 articles on the extraordinary public-health and economic impact, as well as the ideas that government and business leaders need to safeguard lives and livelihoods. In the past week, four articles have captured the attention of leaders around the world. We summarize these articles here and invite you to take in the full collection.
by Andres Cadena, Felipe Child, Matt Craven, Fernando Ferrari, David Fine, Juan Franco, and Matthew Wilson
The threat of COVID-19 to lives and livelihoods will fully resolve only when enough people are immune to the disease to blunt transmission, either from a vaccine or direct exposure. Until then, governments that want to restart their economies must have public-health systems that are strong enough to detect and respond to cases.
The first and most obvious factor in determining readiness is the number of new cases in a given area. Regions with significant ongoing transmission should expect that restarting economic activity will only lead to more transmission. Case numbers and, more importantly, hospitalizations need to be low enough for a health system to manage individually rather than through mass measures. A second factor in thinking about this is the strength of the systems in place for detecting, managing, and preventing new cases, including adequate medical capacity, especially of intensive care units (ICUs), for those with severe disease; the ability to perform a diagnostic test for COVID-19 with a fast turnaround time; and several other elements.
If we combine a system’s level of strength with an assessment of the intensity of virus transmission, we can evaluate any region’s readiness to restart activity (Exhibit 3). These two dimensions determine four stages of readiness to reopen the economy, with Stage 4 the least ready and Stage 1 the most.
by David Chinn, Hauke Engel, Daniel Härtl, Milena Quittnat, Pal Erik Sjatil, Marja Seidel, Sven Smit, Sebastian Stern, and Eckart Windhagen
As European countries begin to consider how to exit lockdowns, local leaders are often the people best placed to evaluate conditions and impose measures that maximize economic recovery while protecting public health. Decisions about which measures to deploy, when and where, should be made locally—if possible, district by district—because there are material differences in the severity of the crisis and economic circumstances (Exhibit 4).
Authorities will need three essential elements to ensure robust implementation. First, leaders will require effective, ready-to-act local-authority structures. In Italy, regional governments collaborated with Rome to establish a national lockdown that allowed regions to apply more stringent rules as necessary.
Second, solutions and directives must be clear and simple, so that the public and businesses can understand them. This might require using new communication channels, such as mobile messaging.
Third, measures must be consistent. If the guidance one day is that shops can admit five people at a time for six hours a day and in the next week that rule changes to two people for eight hours, the results will be irritation, noncompliance, and the erosion of trust in public authorities.
by Tom Latkovic, Leah Pollack, and Jordan VanLare, MD
Local US leaders, such as mayors and governors, have an outsized role in the fight against COVID-19. We see six domains for engagement:
- Foundational public health. We assessed 23 public-health interventions and identified the most fundamental ones.
- Societal compliance. We monitored different approaches to ensure compliance and found a steeper decline in infections where communities enforced policies tightly (through arrests, for example) than in those that used only fines.
- Health-system capacity. To prevent demand for healthcare services from outstripping supply, we found that at least a doubling of critical-care capacity is probably possible and necessary, at least temporarily, across most parts of the United States.
- Industry safeguards. If the risk of contagion continues for 12 to 18 months, public- and private-sector leaders should promote the most effective adaptations and safeguards to economic activity, including physical barriers, face guards, physical distancing, health screenings before entry, and generous and flexible sick leave. Sectors will vary in how critical they are and their ability to safeguard.
- Protection of the vulnerable. COVID-19 is especially destabilizing for vulnerable populations, including people with chronic physical- or behavioral-health conditions, limited mobility, advanced age, and unmet health-related social needs, such as food and housing insecurity. Each will require targeted interventions.
- Economic health. Local leaders need to develop a fact base on their economies and then ensure that money from new and current programs gets into the hands of citizens quickly and easily.
by Oliver Tonby and Jonathan Woetzel
The COVID-19 outbreak began in Asia—but so have early indications of containment, new protocols, and the resumption of economic activity. Although the risk of another outbreak remains, economic-activity indicators in China suggest that urban activities are returning to pre-outbreak levels. Traffic congestion and residential-property sales are close to where they stood in early January 2020. Air pollution and coal consumption have returned to 74 and 85 percent, respectively, of their January 1 levels. A recent McKinsey survey of 2,500 Chinese consumers indicates “cautious optimism”—a gradual regaining of confidence, which should increase spending. At this moment, strong public-health responses in China, Singapore, and South Korea appear to have been successful. Significant evidence indicates that the curve of cumulative confirmed COVID-19 patients in Asia is becoming flatter.
As companies in the region resume activity, they may be the world’s first to shape the “next normal.” What will that look like? Four dimensions could define it:
- Rethinking social contracts. In crises, the state plays an essential and expanded role, protecting people and organizing the response. This power shift transforms long-held expectations about the roles of individuals and institutions.
- Defining the future of work and consumption. The crisis has propelled new technology across all aspects of Asian life, from e-commerce to remote-working and -learning tools, including Alibaba’s DingTalk, WeChat Work, and Tencent Meeting. New working and shopping practices will probably become a permanent fixture of the next normal.
- Mobilizing resources at speed and scale. Within weeks, China added tens of thousands of doctors and hospital beds. Several governments invested in new tools to map transmission and rolled out huge economic-stimulus plans. Asia has a proven ability to mobilize resources in a crisis.
- Moving from globalization to regionalization. The pandemic has exposed the world’s risky dependence on vulnerable nodes in global supply chains. China, for example, accounts for about 50 to 70 percent of global demand for copper, iron ore, metallurgical coal, and nickel. We could see a massive restructuring as production and sourcing move closer to end users and companies localize or regionalize their supply chains.
About the authors
Matt Craven, MD, is a partner in McKinsey’s Silicon Valley office. Mihir Mysore is a partner in the Houston office. Shubham Singhal is a senior partner in the Detroit office. Matt Wilson is a senior partner in the New York office.
COVID-19: Briefing note, March 30, 2020
Our latest perspectives on the coronavirus pandemic.
By Matt Craven, Mihir Mysore, Shubham Singhal, Sven Smit, and Matt Wilson
The pandemic continues to expand. More than 175 countries and territories have reported cases of COVID-19, the disease caused by the coronavirus (SARS-CoV-2). Case growth has accelerated to more than 735,000 cases and 35,000 deaths as of March 30. Some geographies have a handful of cases, others with early community transmission have a few hundred, and those with uncontrolled, widespread transmission have tens of thousands. Governments have launched unprecedented public-health and economic responses. The situation evolves by the day.
In this note, we offer some of our latest insights, starting with five likely epidemiologic swing factors that will largely determine the contours of the pandemic in the next year. We then summarize two new articles designed to help senior executives lead through the crisis. In “Beyond coronavirus: The path to the next normal,” we outline five time frames to help leaders organize their thinking and responses. And in “Safeguarding our lives and our livelihoods: The imperative of our time,” we explain how business and society can and must take on both spheres of action, right away. These and many more are available in our collection of coronavirus thinking. We conclude with a short list of the areas in which executives should be concentrating their thought and attention.
Epidemiological swing factors for COVID-19
Every country is looking to join the few that have controlled the epidemic for now and are focusing on preventing a resurgence. The next stages in every country are unknowable (Exhibit 1). But in our view, the spread or control of the virus in the next year comes down to five factors:
- Growth of new transmission complexes and evidence of seasonality. While most countries in the world have at least one case, most counts are relatively low. The extent to which these countries follow the path of countries such as Singapore that have achieved rapid control, versus that of western Europe and the United States, will be a major driver of outcomes. Moreover, these geographies also skew to more tropical climates and will provide some evidence on how much of a mitigating effect heat and humidity will have on the coronavirus. If the virus proves to be seasonal, this has the potential to shape both emerging and existing transmission complexes.
- Impact of physical-distancing measures. We know that rigorous, at-scale physical-distancing measures can drive a significant reduction in the number of new COVID-19 cases. However, given the range of approaches in use—and the varying stringency with which they are being applied—there’s much still to learn about what exactly works and how long it takes. In the next one to two weeks, we will learn much more, as we begin to see evidence of the impact of physical distancing in Europe and the United States.
- Efficacy of health-system surge. As the world has awakened to the potential risks of COVID-19, there has been a massive effort to add capacity to the healthcare system rapidly. This has rightly focused on adding acute-care capacity, providing ventilators, and building stocks of other critical medical supplies, such as personal protective equipment. If this surge (combined with efforts to reduce the demand on the health system) can prevent health systems from being overwhelmed, mortality from COVID-19 will be significantly lower. The development of clinically validated treatments could be a similar boon, but the emerging evidence on that front is mixed, thus far.
- Readiness of the health system to navigate recurrence. As authorities begin to think about what’s needed to navigate a postpeak environment, the public-health tools deployed will have a different emphasis from today’s focus in Europe and the United States. They will include at-scale testing, sophisticated real-time surveillance, rigorous contact tracing, and rapid, targeted quarantine to isolate cases and contacts. This mix of tools is how Korea, Singapore, and Taiwan have rapidly contained COVID-19. An antibody test would be a powerful tool in this arsenal, since it would show which people are at risk and which aren’t. Even as public-health authorities negotiate an unprecedented period of demand on the health system, they will need to design and build systems to prevent resurgence of the disease as we pass the peak.
- Emergence of herd immunity. Herd immunity occurs when a sufficient portion of the population isn’t susceptible to an infectious disease; at that point, transmission doesn’t propagate, for lack of available hosts. It typically occurs through either widespread exposure or immunization. With a disease as infectious as COVID-19, experts believe that more than two-thirds of the population would need to be immune to create herd immunity. 16 16. Assumes reproductive number greater than two. A number of recent publications assert this. See, for example, Zhang, S., Diao, M., Yu, W., Pei, L., Lin, Z., and Chen, D., “Estimation of the reproductive number of novel coronavirus (COVID-19) and the probable outbreak size on the Diamond Princess cruise ship: A data-driven analysis,” National Center for Biotechnology Information, February 20, 2020, pubmed.gov. But there’s much that we don’t know about the possibility of multiple strains of the virus—and about the duration of human immunity. Answering those questions will have important implications for the course of the pandemic.
Two new insights
We have recently published several new articles on the pandemic. Two have captured the attention of leaders worldwide. We summarize them here and invite you to take in the full case in our collection.
By Kevin Sneader and Shubham Singhal
What will it take to navigate this crisis, now that our traditional metrics and assumptions have been rendered irrelevant? More simply put, it’s our turn to answer a question that many of us once asked of our grandparents: What did you do during the war?
Our answer is a call to act across five stages, leading from the crisis of today to the next normal that will emerge after the battle against coronavirus has been won: Resolve, Resilience, Return, Reimagination, and Reform (Exhibit 2).
Collectively, these five stages represent the imperative of our time: the battle against COVID-19 is one that leaders today must win if we are to find an economically and socially viable path to the next normal.
By Sven Smit, Martin Hirt, Kevin Buehler, Susan Lund, Ezra Greenberg, and Arvind Govindarajan
We see enormous energy invested in suppressing the coronavirus, while many urge even faster and more rigorous measures. We also see enormous energy expended on stabilizing the economy through public-policy responses. However, to avoid permanent damage to our livelihoods, we need to find ways to “timebox” this event: we must think about how to suppress the virus and shorten the duration of the economic shock.
To aid decision makers, we have developed scenarios, based on three likely paths for the spread of the virus and the public health response, and three potential levels of effectiveness for governmental economic response (Exhibit 3).
Many leaders currently expect one of the scenarios shaded in Exhibit 3 (A1–A4) to materialize. In each of these, the COVID-19 spread is eventually controlled, and catastrophic structural economic damage is avoided. These scenarios describe a global average, while situations will inevitably vary by country and region. But all four of these scenarios lead to V- or U-shaped recoveries.
Other, more extreme scenarios can also be conceived, and some of them are already being discussed (B1–B5 in Exhibit 3). One can’t exclude the possibility of a “black swan of black swans”: structural damage to the economy, caused by a yearlong spread of the virus until a vaccine is widely available, combined with the lack of policy response to prevent widescale bankruptcies, unemployment, and a financial crisis.
Steps to take now
Amid the chaos and all the incoming advice, it’s hard to know exactly what leaders should do today. We suggest they focus their time on four areas:
Support and protect employees in this brave new world. Many institutions have put basic protections in place for their employees and customers. Companies have activated no-travel and work-from-home policies for some workers and physical-distancing-at-work measures for others. The challenge is evolving. For remote workers, interruptions are more frequent than in the office. Making a mental separation from a sometimes-chaotic home life is tough. Workers are finding that they don’t have the skills to be successful in an extended remote environment, from networking to creating routines that drive productivity. They worry that staying remote could make them less valuable, especially in a recessionary environment.
As our colleagues recently explained, three goals are essential. Companies need to increase communication, balancing the needs of the business with expectation setting and morale building, so employees know that their well-being is top of mind. They also need to change working norms, making remote work practical and simple whenever possible. And of course, they must protect people’s health, with whatever measures are appropriate to the workplace: positive hygiene habits, personal protective equipment, amended sick-leave policies—whatever it takes to ensure health and safety.
- Monitor leading indicators of how and where the pandemic is evolving and conduct scenario planning using both epidemiological and economic inputs. Earlier, we sketched out the swing factors to watch to understand how the coronavirus pandemic might develop. As companies develop scenarios, they might want to consider the article “Safeguarding our lives and our livelihoods: The imperative of our time,” which details McKinsey’s nine epidemiologic and economic scenarios.
- Think about the next horizons of COVID-19. In the urgency of the moment, it’s easy to lose sight of the actions that might be needed tomorrow—and the day after that. The article “Beyond coronavirus: The path to the next normal,” explains the five horizons that every executive should use to ensure an organization’s rapid response, adaptation to change, and reemergence in a position of strength.
- Evolve the nerve center to plan for the next phase. Every assumption underpinning a business is open to question. To take one example, we might be in the midst of the largest drawdown in demand since the Second World War. The pendulum might not swing back fully once the outbreak has relented. Having experienced a new way of living, consumers are recalibrating their spending, increasing the likelihood that spending may permanently shift between categories and that online services could get adopted far faster. Decoding this new normal—and ensuring that the company has a strategy to navigate it—is an important part of the work of a nerve center. Approaches such as using a portfolio of initiatives and planning for decision making under uncertainty can go a long way toward creating a compass for business leaders to follow.
The next normal will look unlike any in the years preceding the coronavirus, the pandemic that changed everything. In these briefing notes, we aim to provide leaders with an integrated perspective on the unfolding crisis and insight into the coming weeks and months.
About the authors
Matt Craven is a partner in McKinsey’s Silicon Valley office, Mihir Mysore is a partner in the Houston office, Shubham Singhal is a senior partner in the Detroit office, Sven Smit is a senior partner in the Amsterdam office, and Matt Wilson is a senior partner in the New York office.
COVID-19: Briefing note, March 16, 2020
Current perspectives on the coronavirus outbreak.
At the time of writing, there have been more than 160,000 confirmed cases of COVID-19 and more than 6,000 deaths from the disease. Older people, especially, are at risk (Exhibit 1). More than 140 countries and territories have reported cases; more than 80 have confirmed local transmission. Even as the number of new cases in China is falling (to less than 20, on some days), it is increasing exponentially in Italy (doubling approximately every four days). China’s share of new cases has dropped from more than 90 percent a month ago to less than 1 percent today.
WHO declared COVID-19 a pandemic on March 11, 2020. In its message, it balanced the certainty that the coronavirus (SARS-CoV-2) will inevitably spread to all parts of the world, with the observation that governments, businesses, and individuals still have substantial ability to change the disease’s trajectory. In this note, we describe emerging archetypes of epidemic progressions; outline two scenarios for the pandemic and its economic effects; and observe some of the ways that business can improve on its early responses.
Our perspective is based on our analysis of past emergencies and our industry expertise. It is only one view, however. Others could review the same facts and emerge with a different view. Our scenarios should be considered only as two among many possibilities. This perspective is current as of March 16, 2020. We will update it regularly as the outbreak evolves.
Archetypes for epidemic progression
Many countries now face the need to bring widespread community transmission of coronavirus under control. While every country’s response is unique, there are three archetypes emerging—two successful and one not—that offer valuable lessons. We present these archetypes while acknowledging that there is much still to be learned about local transmission dynamics and that other outcomes are possible:
- Extraordinary measures to limit spread. After the devastating impact of COVID-19 became evident in the Hubei province, China imposed unprecedented measures—building hospitals in ten days, instituting a “lockdown” for almost 60 million people and significant restrictions for hundreds of millions of others, and using broad-based surveillance to ensure compliance—in an attempt to combat the spread. These measures have been successful in rapidly reducing transmission of the virus, even as the economy has been restarting.
- Gradual control through effective use of public-health best practices. South Korea experienced rapid case-count growth in the first two weeks of its outbreak, from about 100 total cases on February 19 to more than 800 new cases on February 29. Since then, the number of new cases has dropped steadily, though not as steeply as in China. This was achieved through rigorous implementation of classic public-health tools, often integrating technology. Examples include rapid and widespread deployment of testing (including the drive-through model) (Exhibit 2), rigorous contact tracing informed by technology, a focus on healthcare-provider safety, and real-time integrated tracking and analytics. Singapore and Taiwan appear to have applied a similar approach, also with broadly successful results.
- Unsuccessful initial control, leading to overwhelmed health systems. In some outbreaks where case growth has not been contained, hospital capacity has been overwhelmed. The disproportionate impact on healthcare workers and lack of flexibility in the system create a vicious cycle that makes it harder to bring the epidemic under control.
There are also other approaches being considered (such as a focus on reaching herd immunity); the impact of these is unclear.
Based on new information that emerged last week, we have significantly updated and simplified our earlier scenarios. A number of respected institutions are now projecting very high case counts. The most pessimistic projections typically give the virus full credit for exponential growth but assume that humans will not respond effectively—that is, they assume that many countries will fall into the third archetype described earlier. We believe this is possible but by no means certain. The scenarios below outline two ways that the interplay between the virus and society’s response might unfold and the implications on the economy in each case. Exhibit 3 lays out a number of critical indicators that may provide early notice of which scenario is unfolding.
Epidemiology. In this scenario, new case counts in the Americas and Europe rise until mid-April. Asian countries peak earlier; epidemics in Africa and Oceania are limited. Growth in case counts is slowed by effective social distancing through a combination of national and local quarantines, employers choosing to restrict travel and implement work-from-home policies, and individual choices. Testing capacity catches up to need, allowing an accurate picture of the epidemic. The virus proves to be seasonal, further limiting its spread. By mid-May, public sentiment is significantly more optimistic about the epidemic. The Southern Hemisphere winter sees an uptick in cases, but by that point, countries have a better-developed playbook for response. While the autumn of 2020 sees a resurgence of infections, better preparedness enables continued economic activity.
Economic impact. Large-scale quarantines, travel restrictions, and social-distancing measures drive a sharp fall in consumer and business spending until the end of Q2, producing a recession. Although the outbreak comes under control in most parts of the world by late in Q2, the self-reinforcing dynamics of a recession kick in and prolong the slump until the end of Q3. Consumers stay home, businesses lose revenue and lay off workers, and unemployment levels rise sharply. Business investment contracts, and corporate bankruptcies soar, putting significant pressure on the banking and financial system.
Monetary policy is further eased in Q1 but has limited impact, given the prevailing low interest rates. Modest fiscal responses prove insufficient to overcome economic damage in Q2 and Q3. It takes until Q4 for European and US economies to see a genuine recovery. Global GDP in 2020 falls slightly.
Epidemiology. In this scenario, the epidemic does not peak in the Americas and Europe until May, as delayed testing and weak adoption of social distancing stymie the public-health response. The virus does not prove to be seasonal, leading to a long tail of cases through the rest of the year. Africa, Oceania, and some Asian countries also experience widespread epidemics, though countries with younger populations experience fewer deaths in percentage terms. Even countries that have been successful in controlling the epidemic (such as China) are forced to keep some public-health measures in place to prevent resurgence.
Economic impact. Demand suffers as consumers cut spending throughout the year. In the most affected sectors, the number of corporate layoffs and bankruptcies rises throughout 2020, feeding a self-reinforcing downward spiral.
The financial system suffers significant distress, but a full-scale banking crisis is averted because of banks’ strong capitalization and the macroprudential supervision now in place. Fiscal and monetary-policy responses prove insufficient to break the downward spiral.
The global economic impact is severe, approaching the global financial crisis of 2008–09. GDP contracts significantly in most major economies in 2020, and recovery begins only in Q2 2021.
Responding to COVID-19: What companies are missing
Our conversations with hundreds of companies around the world on COVID-19 challenges have allowed us to compile a view of the major work streams that companies are pursuing (Exhibit 4).
While this list is fairly comprehensive, some companies are taking other steps. However, we have seen evidence that many companies are finding it hard to get the major actions right. We have consistently heard about five challenges.
Having an intellectual understanding isn’t the same as internalizing the reality
Exponential case-count growth is hard to internalize unless you have experienced it before. Managers who haven’t experienced this or been through a “tabletop” simulation are finding it difficult to respond correctly. In particular, escalation mechanisms may be understood in theory, but companies are finding them hard to execute in reality, as the facts on the ground don’t always conform to what it says in the manual. Crisis case studies are replete with examples of managers who chose not to escalate, creating worse issues for their institutions.
Employee safety is paramount, but mechanisms are ineffective
Policy making at many companies is scattershot, especially at those that haven’t yet seen the coronavirus directly. Many, such as professional-services and tech companies, lean very conservative: their protection mechanisms often add to a perception of safety without actually keeping people safer. For instance, temperature checks may not be the most effective form of screening, given that the virus may transmit asymptomatically. Asking employees to stay at home if they are unwell may do more to reduce transmissibility. Such policies are more effective if employees receive compensation protection—and insulation from other consequences too.
Some companies aren’t thinking through the second-order effects of their policies. For example, a ban on travel without a concomitant work-from-home policy can make the office very crowded, leading to higher risk of transmission. Others are adopting company-wide policies without thinking through the needs of each location and each employee segment.
Optimism about the return of demand is dangerous
Being optimistic about demand recovery is a real problem, especially for companies with working-capital or liquidity shortages and those veering toward bankruptcy. Troubled organizations are more likely to believe in a faster recovery—or a shallower downturn. Facing up to the possibility of a deeper, more protracted downturn is essential, since the options available now, before a recession sets in, may be more palatable than those available later. For example, divestments to provide needed cash can be completed at a higher price today than in a few weeks or months.
Assumptions across the enterprise are misaligned
Some companies are pursuing their coronavirus responses strictly within organizational silos (for example, the procurement team is driving supply-chain efforts, sales and marketing teams are working on customer communications, and so on). But these teams have different assumptions and tend to get highly tactical, going deep in their own particular patch of weeds rather than thinking about what other parts of the company are doing—or about what might come next.
The near term is essential, but don’t lose focus on the longer term (which might be worse)
Immediate and effective response is, of course, vital. We think that companies are by and large pursuing the right set of responses, as shown in Exhibit 4. But on many of these work streams, the longer-term dimensions are even more critical. Recession may set in. The disruption of the current outbreak is shifting industry structures. Credit markets may seize up, in spite of stimulus. Supply-chain resilience will be at a premium. It may sound impossible for management teams that are already working 18-hour days, but too few are dedicating the needed time and effort to responses focused on the longer term.
The coronavirus crisis is a story with an unclear ending. What is clear is that the human impact is already tragic, and that companies have an imperative to act immediately to protect their employees, address business challenges and risks, and help to mitigate the outbreak in whatever ways they can.
For the full set of our latest perspectives, please see the attached full briefing materials, which we will update regularly. We welcome your comments and questions at firstname.lastname@example.org.
For more of the latest information on COVID-19, please see reports from the European Centre for Disease Control and Prevention, the US Centers for Disease Control and Prevention, and WHO; and thelive tracker of global cases from Johns Hopkins University.
COVID-19: Briefing note, March 9, 2020
A range of outcomes is possible. Decision makers should not assume the worst.
Less than ten weeks have passed since China reported the existence of a new virus to the World Health Organization. This virus, now known as SARS-CoV-2, causing COVID-19 disease, spread quickly in the city of Wuhan and throughout China. The country has experienced a deep humanitarian challenge, with more than 80,000 cases and more than 3,000 deaths. COVID-19 progressed quickly beyond China’s borders. Four other major transmission complexes are now established across the world: East Asia (especially South Korea, with more than 7,000 cases, as well as Singapore and Japan), the Middle East (centered in Iran, with more than 6,500 cases), Europe (especially the Lombardy region in northern Italy, with more than 7,300 cases, but with widespread transmission across the continent), and the United States, with more than 200 cases. Each of these transmission complexes has sprung up in a region where millions of people travel every day for social and economic reasons, making it difficult to prevent the spread of the disease. In addition to these major complexes, many other countries have been affected. Exhibit 1 (see an updated version of the exhibit here) offers a snapshot of the current progress of the disease and its economic impact.
The next phases of the outbreak are profoundly uncertain. In our view, the prevalent narrative, focused on pandemic, to which both markets and policy makers have gravitated as they respond to the virus, is possible but underweights the possibility of a more optimistic outcome. In this briefing note, we attempt to distinguish the things we know from those we don’t, and the potential implications of both sets of factors. We then outline three potential economic scenarios, to illustrate the range of possibilities, and conclude with some discussion of the implications for companies’ supply chains, and seven steps businesses can take now to prepare.
Our perspective is based on our analysis of past emergencies and on our industry expertise. It is only one view, however. Others could review the same facts and emerge with a different view. Our scenarios should be considered only as three among many possibilities. This perspective is current as of March 9, 2020. We will update it regularly as the outbreak evolves.
What we know, and what we are discovering
What we know. Epidemiologists are in general agreement on two characteristics of COVID-19:
- The virus is highly transmissible. Both observed experience and emerging scientific evidence show that the virus causing COVID-19 is easily transmitted from person to person. The US Centers for Disease Control and Prevention estimates that the virus’s reproduction number (the number of additional cases that likely result from an initial case) is between 1.6 and 2.4, making COVID-19 significantly more transmissible than seasonal flu (whose reproduction number is estimated at 1.2 to 1.4) (Exhibit 2).
- The virus disproportionately affects older people with underlying conditions. Epidemiologists Zunyou Wu and Jennifer McGoogan analyzed a report from China Centers for Disease Control and Prevention that looked at more than 72,000 cases and concluded that the fatality rate for patients 80 and older was seven times the average, and three to four times the average for patients in their 70s. 17 17. Wu Zunyou and Jennifer M. McCoogan, “Characteristics of and important lessons from the coronavirus disease 2019 (COVID-19) outbreak in China,” JAMA: Journal of the American Medical Association, February 2020, jamanetwork.com. Other reports describe fatality rates for people under 40 to be 0.2 percent.
What we are still discovering. Three characteristics of the virus are not fully understood, but are key variables that will affect how the disease progresses, and the economic scenario that evolves:
- The extent of undetected milder cases. We know that those infected often display only mild symptoms (or no symptoms at all), so it is easy for public-health systems to miss such cases. For example, 55 percent of the cases on board the Diamond Princess cruise ship did not exhibit significant symptoms (even though many passengers were middle-aged or older). But we don’t know for sure whether official statistics are capturing 80 percent, 50 percent, or 20 percent of cases.
- Seasonality. There is no evidence so far about the virus’s seasonality (that is, a tendency to subside in the northern hemisphere as spring progresses). Coronaviruses in animals are not always seasonal but have historically been so in humans for reasons that are not fully understood. In the current outbreak, regions with higher temperatures (such as Singapore, India, and Africa) have not yet seen a broad, rapid propagation of the disease.
- Asymptomatic transmission. The evidence is mixed about whether asymptomatic people can transmit the virus, and about the length of the incubation period. If asymptomatic transfer is a major driver of the epidemic, then different public-health measures will be needed.
These factors notwithstanding, we have seen that robust public-health responses, like those in China outside Hubei and in Singapore, can help stem the epidemic. But it remains to be seen how these factors will play out and the direct impact they will have. The economic impact too will vary considerably.
In our analysis, three broad economic scenarios might unfold: a quick recovery, a global slowdown, and a pandemic-driven recession. Here, we outline all three. We believe that the prevalent pessimistic narrative (which both markets and policy makers seem to favor as they respond to the virus) underweights the possibility of a more optimistic outcome to COVID-19 evolution.
In this scenario, case count continues to grow, given the virus’s high transmissibility. While this inevitably causes a strong public reaction and drop in demand, other countries are able to achieve the same rapid control seen in China, so that the peak in public concern comes relatively soon (within one to two weeks). Given the low fatality rates in children and working-age adults, we might also see levels of concern start to ebb even as the disease continues to spread. Working-age adults remain concerned about their parents and older friends, neighbors, and colleagues, and take steps to ensure their safety. Older people, especially those with underlying conditions, pull back from many activities. Most people outside the transmission complexes continue their normal daily lives.
The scenario assumes that younger people are affected enough to change some daily habits (for example, they wash hands more frequently) but not so much that they shift to survival mode and take steps that come at a higher cost, such as staying home from work and keeping children home from school. A complicating factor, not yet analyzed, is that workers in the gig economy, such as rideshare drivers, may continue to report to work despite requests to stay home, lest they lose income. This scenario also presumes that the virus is seasonal.
In this scenario, our model developed in partnership with Oxford Economics suggests that global GDP growth for 2020 falls from previous consensus estimates of about 2.5 percent to about 2.0 percent. The biggest factors are a fall in China’s GDP from nearly 6 percent growth to about 4.7 percent; a one-percentage-point drop in GDP growth for East Asia; and drops of up to 0.5 percentage points for other large economies around the world. The US economy recovers by the end of Q1. By that point, China resumes most of its factory output; but consumer confidence there does not fully recover until end Q2. These are estimates, based on a particular scenario. They should not be considered predictions.
This scenario assumes that most countries are not able to achieve the same rapid control that China managed. In Europe and the United States, transmission is high but remains localized, partly because individuals, firms, and governments take strong countermeasures (including school closings and cancellation of public events). For the United States, the scenario assumes between 10,000 and 500,000 total cases. It assumes one major epicenter with 40 to 50 percent of all cases, two or three smaller centers with 10 to 15 percent of all cases, and a “long tail” of towns with a handful or a few dozen cases. This scenario sees some spread in Africa, India, and other densely populated areas, but the transmissibility of the virus declines naturally with the northern hemisphere spring.
This scenario sees much greater shifts in people’s daily behaviors. This reaction lasts for six to eight weeks in towns and cities with active transmission, and three to four weeks in neighboring towns. The resulting demand shock cuts global GDP growth for 2020 in half, to between 1 percent and 1.5 percent, and pulls the global economy into a slowdown, though not recession.
In this scenario, a global slowdown would affect small and mid-size companies more acutely. Less developed economies would suffer more than advanced economies. And not all sectors are equally affected in this scenario. Service sectors, including aviation, travel, and tourism, are likely to be hardest hit. Airlines have already experienced a steep fall in traffic on their highest-profit international routes (especially in Asia–Pacific). In this scenario, airlines miss out on the summer peak travel season, leading to bankruptcies (FlyBe, the UK regional carrier, is an early example) and consolidation across the sector. A wave of consolidation was already possible in some parts of the industry; COVID-19 would serve as an accelerant.
In consumer goods, the steep drop in consumer demand will likely mean delayed demand. This has implications for the many consumer companies (and their suppliers) that operate on thin working-capital margins. But demand returns in May–June as concern about the virus diminishes. For most other sectors, the impact is a function primarily of the drop in national and global GDP, rather than a direct impact of changed behaviors. Oil and gas, for instance, will be adversely affected as oil prices stay lower than expected until Q3.
Pandemic and recession
This scenario is similar to the global slowdown, except it assumes that the virus is not seasonal (unaffected by spring in the northern hemisphere). Case growth continues throughout Q2 and Q3, potentially overwhelming healthcare systems around the world and pushing out a recovery in consumer confidence to Q3 or beyond. This scenario results in a recession, with global growth in 2020 falling to between –1.5 percent and 0.5 percent.
For many companies around the world, the most important consideration from the first ten weeks of the COVID-19 outbreak has been the effect on supply chains that begin in or go through China. As a result of the factory shutdowns in China during Q1, many disruptions have been felt across the supply chain, though the full effects are of course still unclear.
Hubei is still in the early phases of its recovery; case count is down, but fatality rates remain high, and many restrictions remain that will prevent a resumption of normal activity until early Q2. In the rest of China, however, many large companies report that they are running at more than 90 percent capacity as of March 1. While some real challenges remain, such as lower than usual availability of migrant labor, there is little question that plants are returning back to work quickly.
Trucking capacity to ship goods from factories to ports is at about 60 to 80 percent of normal capacity. Goods are facing delays of between eight and ten days on their journey to ports.
The Baltic Dry Index (which measures freight rates for grains and other dry goods around the world) dropped by about 15 percent at the onset of the outbreak but has increased by nearly 30 percent since then. The TAC index, which measures air-freight prices, has also risen by about 15 percent since early February.
In the next few months, the phased restart of plants outside Hubei (and the slower progress of plants within Hubei) is likely to lead to challenges in securing critical parts. As inventories are run down faster, parts shortages are likely to become the new reason why plants in China cannot operate at full capacity. Moreover, plants that depend on Chinese output (which is to say, most factories around the world) have not yet experienced the brunt of the initial Chinese shutdown and are likely to experience inventory “whiplash” in the coming weeks.
Perhaps the biggest uncertainty for supply-chain managers and production heads is customer demand. Customers that have prebooked logistics capacity may not use it; customers may compete for prioritization in receiving a factory’s output; and the unpredictability of the timing and extent of demand rebound will mean confusing signals for several weeks.
Responding to COVID-19
In our experience, seven actions can help businesses of all kinds. We outline them here as an aid to leaders as they think through crisis management for their companies. These are only guidelines; they are by no means exhaustive or detailed enough to substitute for a thorough analysis of a company’s particular situation.
Protect your employees. The COVID-19 crisis has been emotionally challenging for many people, changing day-to-day life in unprecedented ways. For companies, business as usual is not an option. They can start by drawing up and executing a plan to support employees that is consistent with the most conservative guidelines that might apply and has trigger points for policy changes. Some companies are actively benchmarking their efforts against others to determine the right policies and levels of support for their people. Some of the more interesting models we have seen involve providing clear, simple language to local managers on how to deal with COVID-19 (consistent with WHO, CDC, and other health-agency guidelines) while providing autonomy to them so they feel empowered to deal with any quickly evolving situation. This autonomy is combined with establishing two-way communications that provide a safe space for employees to express if they are feeling unsafe for any reason, as well as monitoring adherence to updated policies.
Set up a cross-functional COVID-19 response team. Companies should nominate a direct report of the CEO to lead the effort and should appoint members from every function and discipline to assist. Further, in most cases, team members will need to step out of their day-to-day roles and dedicate most of their time to virus response. A few workstreams will be common for most companies: a) employees’ health, welfare, and ability to perform their roles; b) financial stress-testing and development of a contingency plan; c) supply-chain monitoring, rapid response, and long-term resiliency (see below for more); d) marketing and sales responses to demand shocks; and e) coordination and communication with relevant constituencies. These subteams should define specific goals for the next 48 hours, adjusted continually, as well as weekly goals, all based on the company’s agreed-on planning scenario. The response team should install a simple operating cadence and discipline that focuses on output and decisions, and does not tolerate meetings that achieve neither.
Ensure that liquidity is sufficient to weather the storm. Businesses need to define scenarios tailored to the company’s context. For the critical variables that will affect revenue and cost, they can define input numbers through analytics and expert input. Companies should model their financials (cash flow, P&L, balance sheet) in each scenario and identify triggers that might significantly impair liquidity. For each such trigger, companies should define moves to stabilize the organization in each scenario (optimizing accounts payable and receivable; cost reduction; divestments and M&A).
Stabilize the supply chain. Companies need to define the extent and likely duration of their supply-chain exposure to areas that are experiencing community transmission, including tier-1, -2, and -3 suppliers, and inventory levels. Most companies are primarily focused on immediate stabilization, given that most Chinese plants are currently in restart mode. They also need to consider rationing critical parts, prebooking rail/air-freight capacity, using after-sales stock as a bridge until production restarts, gaining higher priority from their suppliers, and, of course, supporting supplier restarts. Companies should start planning how to manage supply for products that may, as supply comes back on line, see unusual spikes in demand due to hoarding. In some cases, medium or longer-term stabilization may be warranted, which calls for updates to demand planning, further network optimization, and searching for and accelerating qualification of new suppliers. Some of this may be advisable anyway, absent the current crisis, to ensure resilience in their supply chain—an ongoing challenge that the COVID-19 situation has clearly highlighted.
Stay close to your customers. Companies that navigate disruptions better often succeed because they invest in their core customer segments and anticipate their behaviors. In China, for example, while consumer demand is down, it has not disappeared—people have dramatically shifted toward online shopping for all types of goods, including food and produce delivery. Companies should invest in online as part of their push for omnichannel distribution; this includes ensuring the quality of goods sold online. Customers’ changing preferences are not likely to go back to pre-outbreak norms.
Practice the plan. Many top teams do not invest time in understanding what it takes to plan for disruptions until they are in one. This is where roundtables or simulations are invaluable. Companies can use tabletop simulations to define and verify their activation protocols for different phases of response (contingency planning only, full-scale response, other). Simulations should clarify decision owners, ensure that roles for each top-team member are clear, call out the “elephants in the room” that may slow down the response, and ensure that, in the event, the actions needed to carry out the plan are fully understood and the required investment readily available.
Demonstrate purpose. Businesses are only as strong as the communities of which they are a part. Companies need to figure out how to support response efforts—such as by providing money, equipment, or expertise. For example, a few companies have shifted production to create medical masks and clothing.
The checklist in Exhibit 3 can help companies make sure they are doing everything necessary.
COVID-19: Briefing note, March 2, 2020
The following is McKinsey’s perspective as of March 2, 2020.
What we know about the outbreak
COVID-19 crossed an inflection point during the week of February 24, 2020. Cases outside China exceeded those within China for the first time, with 54 countries reporting cases as of February 29. The outbreak is most concentrated in four transmission complexes—China (centered in Hubei), East Asia (centered in South Korea and Japan), the Middle East (centered in Iran), and Western Europe (centered in Italy). In total, the most-affected countries represent nearly 40 percent of the global economy. The daily movements of people and the sheer number of personal connections within these transmission complexes make it unlikely that COVID-19 can be contained. And while the situation in China has stabilized with the implementation of extraordinary public-health measures, new cases are also rising elsewhere, including Latin America (Brazil), the United States (California, Oregon, and Washington), and Africa (Algeria and Nigeria). The US Centers for Disease Control and Prevention has set clear expectations that the United States will experience community transmission, and evidence is emerging that it may be happening already.
While the future is uncertain, it is likely that countries in the four mature transmission complexes will see continued case growth; new complexes may emerge. This could contribute to a perception of “leakage,” as the public comes to believe that the infections aren’t contained. Consumer confidence, especially in those complexes, may erode, and could be further weakened by restrictions on travel and limits on mass gatherings. China will mostly likely recover first, but the global impact will be felt much longer. We expect a slowdown in global growth for 2020. In what follows, we review the two most likely scenarios for economic impact and recovery and provide insights and best practices on how business leaders can navigate this uncertain and fast-changing situation.
In our base-case scenario, continued spread within established complexes, as well as community transmission in new complexes, drives a 0.3- to 0.7-percentage-point reduction in global GDP growth for 2020. China, meanwhile, continues on its path to recovery, achieving a near-complete economic restart by mid-Q2 (in spite of the current challenges of slow permissions and lack of migrant-worker capacity). As other geographies experience continued case growth, it is likely that movement restrictions will be imposed to attempt to stop or slow the progression of the disease. This will almost certainly drive a sharp reduction in demand, which in turn lowers economic growth through Q2 and early Q3. Demand recovery will depend on a slowing of case growth, the most likely cause of which would be “seasonality”—a reduction in transmissions similar to that seen with influenza in the northern hemisphere as the weather warms. Demand may also return if the disease’s fatality ratio proves to be much lower than we are currently seeing.
Regions that have not yet seen rapid case growth (such as the Americas) are increasingly likely to see more sustained community transmission (for example, expansion of the emergency clusters in the western United States). Greater awareness of COVID-19, plus additional time to prepare, may help these complexes manage case growth. However, complexes with less robust health systems could see more general transmission. Lower demand could slow growth of the global economy between 1.8 percent and 2.2 percent instead of the 2.5 percent envisioned at the start of the year.
Unsurprisingly, sectors will be affected to different degrees. Some sectors, like aviation, tourism, and hospitality, will see lost demand (once customers choose not to eat at a restaurant, those meals stay uneaten). This demand is largely irrecoverable. Other sectors will see delayed demand. In consumer goods, for example, customers may put off discretionary spending because of worry about the pandemic but will eventually purchase such items later, once the fear subsides and confidence returns. These demand shocks—extended for some time in regions that are unable to contain the virus—can mean significantly lower annual growth. Some sectors, such as aviation, will be more deeply affected.
In the pessimistic scenario, case numbers grow rapidly in current complexes and new centers of sustained community transmission erupt in North America, South America, and Africa. Our pessimistic scenario assumes that the virus is not highly seasonal, and that cases continue to grow throughout 2020. This scenario would see significant impact on economic growth throughout 2020, resulting in a global recession.
In both the base-case and pessimistic scenarios, in addition to facing consumer-demand headwinds, companies will need to navigate supply-chain challenges. Currently, we see that companies with strong, centralized procurement teams and good relationships with suppliers in China are feeling more confident about their understanding of the risks these suppliers face (including tier-2 and tier-3 suppliers). Others are still grappling with their exposure in China and other transmission complexes. Given the relatively quick economic restart in China, many companies are focused on temporary stabilization measures rather than moving supply chains out of China. COVID-19 is also serving as an accelerant for companies to make strategic, longer-term changes to supply chains—changes that had often already been under consideration.
To better understand which scenario may prevail, planning teams can consider a set of leading indicators like those in the exhibit (see an updated version of the exhibit here).