Where a stringent policy response is deemed necessary, a business will inevitably be impacted, with both near-term effects and less-expected longer-run consequences.
- Travel restrictions and quarantines affecting hundreds of millions of people have left Chinese factories short of labor and parts, disrupting just-in-time supply chains and triggering sales warnings across technology, automotive, consumer goods, pharmaceutical, and other industries.
- Commodity prices have declined in response to a fall in China’s consumption of raw materials, and producers are considering cutting output.
- The mobility and work disruptions have led to marked declines in Chinese consumption, squeezing multinational companies in several sectors including aviation, education abroad, infrastructure, tourism, entertainment, hospitality, electronics, consumer and luxury goods.
Overall, China’s GDP growth may slow by 0.5 percentage points this year, taking at least 0.1 percentage point off global GDP growth. This will ripple through developed and emerging markets with high dependencies on China – be that in the form of trade, tourism or investment. Some of these countries exhibit pre-existing economic fragilities, others (acknowledging an overlap) have weak health systems and thus lower resilience to pandemics. Many Asian and African countries lack surveillance, diagnostic, and hospital capacities to identify, isolate, and treat patients during an outbreak. Weak systems anywhere are a risk to health security everywhere, increasing the possibility of contagion and the resulting social and economic consequences.
Why business should invest in pandemic-resilience
Epidemics and pandemics are hence both a standalone business risk as well as an amplifier of existing trends and vulnerabilities. In the longer run, COVID-19 may serve as another reason – besides protectionist regulations and energy efficiency needs – for companies to reassess their supply chain exposure to outbreak-prone regions, and to reconfigure regionally.
Businesses may also have to contend with intensifying political, economic, and health security risks – for example, resumption of trade hostilities between China and the United States. A prolonged outbreak or economic disruption could fan public discontent in Hong Kong and mainland China, prompting repressive measures that stifle innovation and growth. Stumbling growth in emerging markets may fail to absorb fast-growing workforces, leading to societal unrest, political uncertainty, and an inability to invest in health systems.
Beyond standard concerns related to business operational continuity, employee protection, and market preservation, businesses – and countries – should take a fresh look at their exposure to complex and evolving inter-dependencies that could compound the effects of pandemics and other crises. Given the panic and neglect cycle of pandemic preparedness, once COVID-19 is contained, much of the world is likely to return to complacency and remain under-prepared for the inevitable next outbreak. Businesses that invest in strategic, operational and financial resilience to emerging global risks will be better positioned to respond and recover.
Richard Smith-Bingham, Executive Director, Marsh & McLennan Advantage Insights, on World Economic Forum.
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