BCG Covid-19 StrategicAndTacticalScenarios 14mar20

Strategic and tactical
scenarios for a
potential COVID-19
recession and recovery
BCG Center for Macroeconomics
NEW YORK, MARCH 14, 2020

Executive summary
Facing the rapidly unfolding COVID-19 crisis, business leaders are forced to make two macroeconomic calls:
1 – the geometry of the shock (V-U-L growth paths), a critical strategic call
2 – the intensity of the shock (depth, speed, duration), a tactical call
This document details the analytic tools necessary to frame the crisis in the strategic and tactical dimensions,
which can form the basis for firm-level response for the long and near term, respectively
Providing the tools for such analysis, we aim to enable readers to make these calls and to do so with specificity to
their regions and ultimately their industries
We also detail our own conclusions including four core scenarios. At this point we think:
• the shock's geometry will be heavily skewed towards a V-shape, though a bad path tilts to a U-shape. That said,
Copyright © 2020 by Boston Consulting Group. All rights reserved.

we feel comfortable dismissing the L-shape, which is worth emphasizing in current context of gloom
• the shock's intensity is exceedingly challenging to assess, particularly for the U.S., where testing has been
insufficient to generate a disease baseline, and mitigation plans are only unfolding (monetary and fiscal
responses showing more clarity). To navigate, we detail the risk drivers and use them as inputs in our scenarios
For macro-to-micro translation, we remind users that our analysis and scenarios are the growth context within
which firms (and investors) operate. Sector and firm-level outcomes will be idiosyncratic and could display U or L-
shapes even on a V-shaped macro growth path. We also point to microeconomic legacies that could represent
upside.
Source: BCG Center for Macroeconomics analysis 1

In this document
1. A very brief recap of macro shocks and

Strategic and recession risk
tactical scenarios 2. How to think about strategic and tactical
for a COVID-19 scenarios in the COVID-19 crisis
recession and 3. Core scenarios (U.S. focus)

recovery 4. From macro to micro: Translating to the
firm level

For context, conceptual recap of macro shocks
As previously published (see here), can categorize shocks as V, U, and L shaped
Each shape has distinct implications for depth, length, and present value of
lost output
1. Empirically,
• all flu shocks have historically been Vs
A very brief • major recessions have been deep Vs or Us,
recap of macro • L-shaped shocks require structural breaks (e.g. Japan in late 1980s)
shocks and In a recession framework, a flu pandemic represents an exogenous shock that
is particularly potent when an economy is already slowing and thus vulnerable,
recession risk

as is the case for the U.S. and many other economies
If shock is severe, can amount to "real economy" recessions
Additional downside risks stem from potential policy errors and financial
system problems (credit intermediation)

Recap: Basic shock scenarios can be described as V-U-L

V-U-L shapes with some technical details
Illustrative
V U L
Return to pre-shock Growth resumes at lower Growth resumes at lower
level (trend)… level (trend) level (trend)…
Levels
…and growth rate (same …but at pre-shock …and at lower
slope) growth rate (slope) growth rate (slope)
…growth overshoots …lost output during recession is Loss in output

on rebound permanently lost, but no perpetuates
perpetual loss
Growth
Time periods Time periods Time periods
Classic economic shock leading to Shock that breaks growth trend, Shock that perpetually breaks a
an intertemporal displacement of even as trend growth remains part of the growth model. A
demand, resume orig. output path same – typically financial structural impact that shifts the
recession or major policy error output path lower as well as
establishing a lower growth rate
5
Source: BCG Center for Macroeconomics analysis
Empirics I: Flu shocks have all been V-shape
Historical precedents interesting, not deterministic
2003 SARS 1957/58 H2N2 1968 H3N2 1918 Spanish Flu
(299 deaths in Hong Kong) (116k deaths in U.S.) (100k deaths in U.S.) (675k deaths in U.S.)
Hong-Kong GDP U.S. GDP U.S. GDP U.S. GDP

Levels

Growth
6
Source: U.S. Census, BEA, CDC, Census and Statistics Department (Hong Kong), BCG Center for Macroeconomics analysis
Empirics II: For U-shaped shocks need to turn to non-flu
examples
1991 – 2001 – 2008 –

Long V, hint of U? V – contained Clear U, touch of L?

Took a long time to Came back to Never comes back
revert, felt like U in prior trend growth to prior growth
early 90s (thus V) trend (U), and
hint of more
shallow slope (L)
7
Source: NBER, BEA, BCG Center for Macroeconomics analysis
Empirics III: For L-shape need to turn to large structural
breaks
Japan L-Shape Argentina L-Shape (log scale)

8
Source: Cabinet Office of Japan, Maddison Project Database, Version 2018, BCG Center for Macroeconomics analysis
Exogenous shocks, like COVID-19, would be "real economy
recession" – but potential policy and financial dimensions
Recession Recession
Trigger Relevant today?
taxonomy typical form
• No real economy imbalances such as
• Imbalances became
Unwind of real consumption or capex boom
unsustainable
Real economy economy • However, the exogenous shock scenarios are
• Exogenous shock
recession imbalances, e.g. perennial and more potent since ~late 2018,
delivers demand
capex boom/bust given slowing and thus more vulnerable
and/or supply shock
growth

Monetary policy too • U.S. monetary policy already on easy stance
Policy rate (r) too high
tight, central bank – multiple cuts since mid-2019 despite
Policy error relative to neutral rate
"ahead of curve" interest rates below neutral rate (r*)
recession (r*), slowing credit
(potentially driven • Fed signals additional willingness to cut
intermediation with lag
by too high inflation) (Friday 2/28)
• Corporate credit bubble is ongoing and

A financial crisis Financial imbalances
presents risks
cripples financial unwind, financial
Financial crisis • However, Credit growth has not fueled real
intermediation and intermediation
recession economy boom, nor is it held on banks'
disrupts the real impaired, real economy
balance sheet, thus systemic risk not
economy disrupted
equivalent to subprime 9
For more technical context on recession types,
transmission channels of shocks, and impact see:
Published 3/1 and updated through 3/12
How to Think Through

the Economic Impact
of COVID-19
BCG Henderson Institute, Center for Macroeconomics
NEW YORK, 3/1/2020
10
Source: BCG Center for Macroeconomics
COVID-19 crisis forces leaders to make two calls:
1 – the geometry of the shock (V-U-L growth paths), a critical strategic call
2 – the intensity of the shock (depth, speed, duration), a tactical call
Firm-level strategic response (e.g. planning, capex decisions,

2. business model adaptations, etc.) should be informed by shock
geometry (what is the present value of shock long-term?)
How to think
about strategic Firm-level tactical response (today's and near-term production,
operations, purchases, customer relationships, etc.) should be
and tactical informed by shock intensity (how bad, fast, long?)
scenarios in the

Shock geometry more easily assessed. Analysis provides arguments
COVID-19 crisis for V and potentially U, and against L.
Shock intensity materially clouded by missing testing baseline in

the U.S. (disease prevalence unknown) and slowly unfolding
mitigation response

Important not to conflate shock geometry and intensity
Geometry is the strategic call, intensity is the tactical call on the COVID-19 crisis
V-U-L: Shock geometry vs. intensity Questions firms and investors need to ask
Illustrative
Intensity of shock (y-axis)
Intensity of shock (size)
• How far will activity fall/unemployment rise

Mild V U L • How fast will the fall occur (duration)
• How fast will the rebound occur
• And: What drives these answers?
V U L

Nature of shock (x-axis)
V U L
• What is the shape of the fall and recovery?
Severe • How big is the loss relative to previous trend?
• Is the change permanent/structural?
• And: what determines the nature/geometry?
Trend growth Trend growth
unaffected downgraded
Geometry of shock (V-U-L shapes)
12
Geometry – be clear what the shapes really mean
Ask this question: what can present value of future output be under COVID-19?
V U L
Contained loss Significant lost value Significant and perpetually
growing lost value
Perpetually growing
No lost output Same perpetually lost output
lost output
Lost output
Lost output Lost output

Time periods Time periods Time periods
V shape leaves de minimis impact U shape results in dramatically L shape results in even more and
on the present value of future more and perpetual loss of present ever growing loss in future output,
output value of future output potentially infinite loss of future
value
13
Intensity – be clear what GDP drawdowns can be
Ask this question: What can depth, speed, and length of COVID drawdown be?
U.S. recession and GDP drawdowns over the past 60 years – notated with drawdowns length (qtrs) and depth
1Q 1Q
-0.29% -0.03%
2Q 1Q 1Q
1Q
3Q -0.64% -0.42% -0.28%
-0.53% 2Q
-1.34% 1Q -1.37%
-1.07% 2Q
-2.18%

2Q
Recession
1Q
-2.63%
-0.74%
5Q
-3.14%
6Q
-3.98%
• The intensity drawdown (peak to trough) can very widely – 0.03bps (2011) to 4% (2008/9)
• The intensity duration (peak to trough) of shock can very widely – 1Q to many (6Q in 2008/09)
14
Source: NBER, BEA, BCG Center for Macroeconomics analysis
How to make strategic and tactical call: drivers
Shock geometry is a function
Virus
of the impact on growth of
Intensity of shock (size)

properties
(SARS-CoV-2)
Mild V U L labor input, growth of capital
formation, and productivity
growth
Mitigation
efforts &
V U L
Shock intensity is a function of
Policy response
virus properties, mitigation
Microeconomic
Severe
V U L efforts, and the reaction of
households and firms

reaction
(households, unaffected downgraded Can systematically look at
firms)
these drivers and sub-drivers
Geometry of shock (V-U-L shapes)
Downgrade of labor input growth

Downgrade of capital input growth
Downgrade of productivity growth
15
Assessing shock geometry: Why V is likely, U plausible
but unlikely, and L possible but not plausible
Drivers of US potential growth What you have to believe for COVID-19 crisis to have…
over the last 10 years (%) …for V-shape …for U-shape …for L-shape
Labor input No change to labor The mortality rate is such that To permanently change the labor input
20 input growth the labor supply shifts down dimension of an economy's supply side, the
growth (one-off) virus' mortality would have to recur each year
to reduce labor supply growth (i.e. no vaccine,
and no conclusive mitigation, indefinitely)
Capital input No change to capital Investment is delayed and not To permanently change capital input growth on
40
growth stock growth caught up, shifting down the supply-side, the virus would have to impair the

capital stock (one-off) credit intermediation system in a way that
perpetually depresses credit formation and
investment
No change in Opportunity for learning are To permanently change productivity growth,

Productivity
40 productivity growth lost and knowledge atrophies would requite a) enduringly disrupt existing
growth shifting down productivity business processes (e.g. by diverting resources
(one-off) to Covid-related mitigation activities) or b)
institutional degradation/collapse
2009-2019 Likely Plausible but not likely Possible in theory but less plausible
16
Source: CBO, BCG Center for Macroeconomics analysis
Assessing shock intensity: What you'd want to know
Insufficient testing and slowly unfolding mitigation efforts in U.S. make assessment challenging
Drivers of shock
intensity Drivers/Risk Impact on intensity Current risk profile (U.S.)
Contagion/Higher R0 rate Debated (perhaps 2 - 3.1)
• Even current profile of
Mortality/Higher than assumed death rate virus has the potential for Debated (varies by age: 0 – 18%)
Virus properties highest shock intensity
Virus resilience/Longer survival period Widely debated
(SARS-CoV-2) • Risks describe further
Weather/Risk of late spring/no seasonal eff. downside(s), e.g. Too early to say
mutation
Mutations/Risk of worse virus Unknown
Testing/too little testing Far too little testing

Mitigation • Mild shock intensity
Social distancing/insufficient measures consistent with strong and Started will continue to intensify
Efforts

Health care system capacity/breaking points successful mitigation Some systems already overwhelmed
• Failed mitigation which
Fiscal policy/too little, too late escalates in form and On the right path with latest legislation
Policy Monetary policy/policy ineffectiveness length would drive up Rate cuts and large scale liquidity provision
response shock intensity
Institutional capacity/struggling, fragmented Struggles in fragmented systems
Consumer confidence/fear takes hold Fear starting to take hold

• Severe shock intensity
Microeconomic Firm reaction function/survival mode would require dramatic Fear starting to take hold
reaction functions and sustained disruption
Financial markets/liquidity driven sell off Fin conditions tightened sharply
and ability to in confidence, financial
nudge them Cash flow problems/going concerns fail market, cash flows, and Risk is moving higher
poor leadership
Leadership /public trust evaporates Fragmented, lack of decisive leadership 17
Application of the geometry/intensity framework to the U.S. economy
leads to 4 core scenarios and what you would have to believe for each:
• What we currently think will be the impact (contained V-path)
• What we fear will be the impact (deep V skewed on U-path)
• What we think is possible but not plausible (U-path)
• What we think is very unlikely (L-path)
3. We stress that U.S. scenarios are constrained by lack of COVID-19 testing,

thus depriving the analysis of a quantitative baseline of disease
Core scenarios prevalence, and a still-unfolding mitigation and stimulus strategy
U.S. recession risk is high, though still not a foregone conclusion at this

point. Six months of negative growth is a considerably high bar and could
escape definition of recession if such six month-period does not line up
with Q2 and Q3, with Q1 plausibly still positive growth
A China-type trajectory, i.e. highly effective, concerted, and fast response
resulting in signs of rebound appears out of reach for Europe and the U.S.,
at this point

Where are we now? (3/14/20)
Illustrative
Geometry/intensity framework Current data indication
Where the data
shows us today Duration of
Real GDP
Drawdown drawdown (Qtrs)
• Real activity tracking data
(Atlanta Fed, NY Fed, initial
V U L 1Q
jobless claims, etc.) does not
(~0%)
yet reflect the impact
Intensity of shock

(~1.5%) V U L 2-4Q • Lagging China's trajectory by
weeks, U.S. Q1 growth could still
be positive
(>3%)
V U L >4Q
• However the impact has begun,
so it is only a matter of time
unaffected downgraded before it shows up
Geometry of shock (V-U-L)
19
Where recent shocks and recessions fit in this scheme
Illustrative
Last 3 US recession in terms of geometry vs. intensity Description
2001 recession 1991 recession
(-0.4%/1Q) (-1.4%/2Q)
Duration of
• The last three U.S. recession can
Real GDP
Drawdown drawdown (Qtrs) provide grounding for the dimension of
the intensity and form.
• 1991 was a V shape recession –
V U L 1Q 1.4% GDP drawdown over 2Q,
Intensity of shock
(~0%)
with a hint of U as for a long time
it look as if growth wouldn't

(~1.5%) V U L 2-4Q return to trend
• 2001 was a classic mild V shape –
with only a 0.4% GDP drawdown
(>3%)
V U L >4Q lasting 1Q
• 2008 was a severe U shaped
recession as GDP drew down 4%
unaffected downgraded over 6 quarters and never
2008 recession
(-4.0%/6Q)
returned to the prior trend
20
Scenario 1: In U.S., we currently think COVID-19 will
likely be a shallow V-shape (contained intensity)
Illustrative
Scenario description What you have to believe
Where It looks
like we are headed Duration of • The nature of a virus shock is
Real GDP
drawdown (Qtrs)
Drawdown likely to be "V-like" in nature
• This assumes a catch-up in

(~0%) V U L 1Q
2001 mitigation measures and their
Intensity of shock
effectiveness (testing essential)

V U L and an significant monetary and
1991
(~1.5%) 2-4Q
fiscal response (each of which
have begun material responses)
(>3%)
V U 2008 L >4Q
• Also assumes limited downside
surprises (mutation, greater
unaffected downgraded mortality, etc.) and second order
effects (business failure, job
Geometry of shock (V-U-L) losses, etc.)
21
Scenario 2: What we fear… is a deep "V-shape"
Illustrative
What we think can be
Real GDP
avoided Duration of • If mitigation efforts are unsuccessful
Drawdown drawdown (Qtrs) and/or have to be maintained for a
sustained period of time the dip has the
potential to be much worse as
(~0%) V U L 1Q consumption continues to fall, aided by
2001
Intensity of shock
a sustain collapse in household and

business confidence and an inadequate

(~1.5%) V 1991
U L 2-4Q
and ineffective policy response
• While this is primarily about a greater

(>3%)
V U 2008 L >4Q
intensity, there could also be a modest
shift toward a U-shape, driven by the
Trend growth Trend growth potential for (one-off) losses in capital
formation and productivity that are not
recovered.
22
Scenario 3: U-shape is plausible but not likely – for this
COVID-19 would need to deliver a financial system crisis
Illustrative
What we think is possible,
but not plausible Duration of
• A "U-shape" downturn would require
Real GDP
Drawdown drawdown (Qtrs) damage to the potential of the
economy – this would require a
permanently lower level of capital,
(~0%) V U L 1Q labor or productivity
2001
• While this is possible a significant U
Intensity of shock
shape is much more in line with the

(~1.5%) V 1991
U L 2-4Q consequences of a financial crisis
(with and impaired credit system and
limited investment) than with a
(>3%)
V U 2008 L >4Q
•
exogenous shock – even a severe one
Thus for this crisis to turn into a
significant U shape would likely
unaffected downgraded require a sustained impairment of
the credit system
23
Scenario 4: L-shape we deem very unlikely – for that,
you'd have to believe in economy's structural break
Illustrative
We find this highly unlikely
Real GDP Duration of
drawdown (Qtrs)
Drawdown • We find an L shaped recession as
impossible. Why? Because it would
require sustained regular damage to
(~0%) V U L 1Q
2001 the growth in labor, capital or
Intensity of shock
productivity

• This would require not just a one-
V U L
1991
(~1.5%) 2-4Q
off shock but a consistent repeated
shock to labor (repeated deadly
V U L
pandemic), to capital (a decline in
(>3%) >4Q
willingness and ability to invest) or
2008
productivity (break in the capacity
to learn)
• Additionally a break in institutional
Geometry of shock (V-U-L) capacity could impair potential
growth
24
Recall that shocks are not automatically recessions,
even when a significant flu hits a vulnerable economy
Epidemic U.S. cyclical tightness1 (unemployment rate, %) U.S. cyclical narrative
8  Very long, tight expansion
Recessions
Start
(HK)
Peak
(US)
 Vulnerable to exogenous
shocks, similar to today
Hong Kong flu 6
 Hong Kong flu hits in 1968
(1968-69)  Does not end cycle
4

1962 1964 1966 1968 1970
US WW I effort
Recessions Recessions
 Spanish flu intersects with end
10 Start Peak of WWI (1918)
(US) (US)
 De-mobilization of war effort
Spanish flu primes economy for recession2
(1918-20) 5  Yet, recession does not hit
until 1920
0
1914 1915 1916 1917 1918 1919 1920 1921
1. We use US data for this analysis because the most granular historical economic data is available there 2. De-mobilization lead to rise in unemployment/recession in 1918 not shown here25
Source: NBER, Bureau of Economic Analysis, WHO, BCG Henderson Institute analysis
Still meaningful chance of avoiding a technical recession
Depending on timing, 6-month slump can be recession or narrow escape, 9mths is unambiguous
ILLUSTRATIVE
2020 Q1 Q2 Q3 Q4
Examples/scenarios
Q2 very likely to be negative; If Q1

Clean
Negative Negative already negative, will be a technical
technical Bounce back
growth growth recession; However, Q1 still likely
recession
positive, given late onset in the U.S.

Narrow Six asynchronous months of negative
technical Negative Negative
Bounce back growth could escape the technical
escape growth growth
definition of recession
3 quarters of negative growth, even if

Unambiguous Negative Negative Negative
Bounce back asynchronous, is a guaranteed
recession growth growth growth
recession
26
Though NBER could have different view ex-post on
COVID-19 recession (or not)…
2 quarters definition NBER recession definition
(rules-based) (committee/assessment based)
• Rule of "technical" recession is 2Q of • National Bureau of Economic Research
sequential negative real GDP growth (NBER) is official arbiter of U.S. recessions
• Advantages include standardized, strictly data • Considers a wide array of factors that are not
dependent, allows comparison across a variety tied down: "the Committee does not have a
of geographies fixed definition of economic activity. It

examines and compares the behavior of
• Disadvantages include it may miss things that various measure of broad activity."
are economic consequential but don't hit
output for a sustained period and for an
economy with a very high (or very low) trend
growth level it may not capture (or may
capture too many) swings
27
Source: NBER, BCG Center for Macroeconomics analysis
China's path indicative of what a strong response can deliver
China data re-based for weekdays excl. weekends relative to start of Chinese New Year
People and goods are starting to Inputs are being used as coal Confidence isn't broken as
move again consumption moves higher property transaction restart

Congestion delays have recovered from Consumption of coal appears to be Confidence appears to be coming back as
62% of 2019 levels to currently 73%, recovering, from 43% of 2019 levels to seen in real estate transactions, which
indicating that the movement of people 75% of 2019 levels had fallen to 1% of 2019 levels but have
and goods is resuming since bounced back to 47%.
Note: Congestion delay index average include Beijing, Shanghai, Guangzhou, Shenzhen, and Wuhan; Daily coal consumption of major power plants = sum of daily average coal consumption of Jerdin Electric,
Guangdon Yudean Group, Datang International Power Generation, and Huaneng Power International, Inc. 28
Source: Wind, www.cqcoal.com, and BCG Center for Macroeconomics
What you want to be monitoring - some starting points
for building a dashboard
Intensity High frequency?
Geometry High frequency?
(daily/weekly) (daily/weekly)
• Knowledge of R0
Virus • Births
• Knowledge of mortality Impact on labor
properties • Profile (age of deaths)
• Vaccine development input growth
(SARS-CoV-2) • Deaths
• Cases/recoveries/deaths
• Social distancing
Mitigation
Business failures

• Testing capabilities •
efforts
• Travel bans/Cancelled events Impact on capital • Investment plans cancelled
_______________
_______________
• Monetary – rate cuts input growth • Borrowing flows
Policy
• Monetary – liquidity provision • Credit rates
Response
• Fiscal stimulus/legislation
Microeconomic • Consumer confidence

reaction • Retail sales Impact on • Cracks in institutional arrangements
functions and • Business confidence productivity • Evidence of new learnings
ability to • Unemployment growth • Evidence of technology innovations
nudge them • Initial claims
29
Discussion in this document has been about the macro/growth
context within which firms operate
Expect idiosyncratic firm and sector-level impact, driven by
variations in geographic footprint, business models, and reaction
functions
Firm-level (and even industry-level) U and L shapes are likely even
4. in context of V-shaped macro path
From macro Likewise, idiosyncratic upside is attainable. For recessionary

scenario, consider that prior recessions have seen huge variation in
to micro firm performance, with 14% of firms able to expand both growth

and EBIT margins
Moreover, looking past COVID-19 crisis, leaders should also consider
micro-economic legacy of crisis – potentially driven by changed
consumer behavior, variations of existing business models triggered
by the shock, and learnings from the crisis experience

Keep in mind, macro shape is context, not destiny for
firms
Macro context Firm-level reality
Macro scenarios describe the context within Important to recognize firm and industry-level
which firms operate idiosyncrasy within shared macro context
As outlined, we have considerable confidence Even as V-shape plays out at macro level,
on geometry of shock (strategic call), less so on individual firms could still face U or L scenarios
intensity of shock (tactical call) (e.g. airlines, cruise lines, live entertainment

businesses come to mind)
Framework broadly applicable across regions
and situations, however each sets of It is important to recognize that even a
circumstances (economy, industry, firm) needs contained V-intensity could represent an
its own evaluation existential threat at a firm level
31
To illustrate, some companies flourish in downturns…
14% of companies improve growth and margin …and the performance gap
in downturns, while 44% decline in both… between them is substantial
Increasing sales growth
Revenue growth Change in
A (CAGR)2 EBIT margin2
8.8% +14pp
14% 14%

Shrinking Expanding +7pp
EBIT margin EBIT margin 2.9pp
44% 28%
-4.7% -4.4pp
B
Falling sales growth
A B A B
1. Average across last four U.S. downturns since 1986; based on performance compared to three-year pre-downturn baseline for U.S. companies with at least $50M sales 2. Annualized revenue
32
growth during the downturn period 3. Compared to three-year average pre-downturn EBIT margin | Source: S&P Compustat and Capital IQ, BCG Henderson Institute
…and that holds across all industries
Distribution of company performance in downturns, by sector1
Falling
32% 34% 28%
B growth and 36%
EBIT margin 47% 45% 46% 45%
54% 53%
Avg:
44%

Other 41% 48% 50% 57%
39% 41% 41% 44%
34% 37%
Increasing
Avg:
growth and
A 22% 20% 16% 16%
14%
EBIT margin 14% 14% 12% 11% 11% 10%
Health Cons. Communic. Utilities Materials Industrials Cons. Energy Financials Information
Care Staples Services Discretionary Technology
1. Average across last four U.S. downturns since 1986; based on performance compared to three-year pre-downturn baseline for U.S. companies with at least $50M sales 33
Note: Sectors based on GICS definitions | Source: S&P Compustat and Capital IQ, BCG Henderson Institute
COVID-19 has potential for microeconomic legacy
SARS COVID-19 Future crisis?
2002-2003 SARS outbreak is What could be COVID-19 What current technologies

widely credited with knock-on effects in terms of could mature by time future
accelerating the adoption of technology adoption or new epidemic hits?
online shopping in China, and processes? • Automated/robotic
specifically with Alibaba's • e-schooling and e-delivery delivery? (taking "infected"
commercial inflection of learning materials? humans out of equation)
(Think Japanese school • Digital nursing assistants,

Comprehensive broadband closures; some New York reducing humans' greater
rollout was a necessary but schools have drawn up e- liability as disease
insufficient pre-condition, learning capabilities) transmitters
and SARS epidemic triggered • "Digital crowd control" • Automated temperature
and accelerated the shift in (smart phone-based screening at public
consumer behavior enforcement of Wuhan transport nodes?
quarantine enables
political will to permit
digital surveillance) 34
What could be other structural legacies of the COVID-19
crisis?
Macroeconomic Political
Global value chain: COVID-19 potentially COVID-19 and COVID-19 containment
reinforces ongoing shift towards capabilities could become new yardstick or
disintermediation of value chains battle ground in geopolitical and economic
systems rivalry
If persists, COVID-19 could shape U.S.
presidential election both operationally The virus could lead to regime change in

and public debate and focus (e.g. on countries with brittle institutions
government capabilities, role of state,
health care access, etc.) COVID-19 epidemic and aftermath could
lead to re-assessment of multilateral
cooperation architecture – or become a
new dimension of "decoupling"
35
Recent BCG economics publications on COVID-19
How to Think Through

the Economic Impact
of COVID-19

BCG Henderson Institute, Center for Macroeconomics
NEW YORK, 3/1/2020
36
And recent COVID-19 publications with economics angle

37
Contacts
Center for Macroeconomic
at BCG Henderson Institute
Philipp Carlsson-Szlezak, Ph.D.
Chief Economist
Partner and Managing Director
carlsson-szlezak.philipp@bcg.com
Martin Reeves

Chairman, BCG Henderson Institute
Senior Partner and Managing Director
reeves.martin@bcg.com
Paul Swartz
Director
Senior Economist
swartz.paul@bcg.com
38
bcg.com

BCG Covid-19 StrategicAndTacticalScenarios 14mar20

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BCG Covid-19 StrategicAndTacticalScenarios 14mar20

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Strategic and tactical

NEW YORK, MARCH 14, 2020

Copyright © 2020 by Boston Consulting Group. All rights reserved.

Source: BCG Center for Macroeconomics analysis 1

1. A very brief recap of macro shocks and

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Source: BCG Center for Macroeconomics analysis 2

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Source: BCG Center for Macroeconomics analysis 3

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…growth overshoots …lost output during recession is Loss in output

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Time periods Time periods Time periods

Hong-Kong GDP U.S. GDP U.S. GDP U.S. GDP

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1991 – 2001 – 2008 –

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Japan L-Shape Argentina L-Shape (log scale)

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• Corporate credit bubble is ongoing and

How to Think Through

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NEW YORK, 3/1/2020

Firm-level strategic response (e.g. planning, capex decisions,

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Shock intensity materially clouded by missing testing baseline in

Source: BCG Center for Macroeconomics analysis 11

• How far will activity fall/unemployment rise

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Geometry of shock (V-U-L shapes)

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Intensity of shock (size)

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Downgrade of labor input growth

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No change in Opportunity for learning are To permanently change productivity growth,

Testing/too little testing Far too little testing

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Consumer confidence/fear takes hold Fear starting to take hold

3. We stress that U.S. scenarios are constrained by lack of COVID-19 testing,

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Source: BCG Center for Macroeconomics analysis 18

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Geometry of shock (V-U-L)

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• This assumes a catch-up in

effectiveness (testing essential)

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a sustain collapse in household and

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• While this is primarily about a greater

shape is much more in line with the

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Q2 very likely to be negative; If Q1

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3 quarters of negative growth, even if

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Copyright © 2020 by Boston Consulting Group. All rights reserved.

Copyright © 2020 by Boston Consulting Group. All rights reserved.