COVID-19: Saving thousands of lives and trillions in livelihoods by Sarun Charumilind, Ezra Greenberg, Jessica Lamb, and Shubham Singhal published by McKinsey & Company (8/2020).
McKinsey introduced the twin imperatives of safeguarding our lives and our livelihoods and a nine-scenario framework to describe potential economic and COVID-19 outcomes (Exhibit 1). At the time, we wrote that the best combined outcomes depended on a rapid and effective public-health response that controlled the spread of the novel coronavirus within two to three months. Similarly, in May, we wrote that crushing uncertainty by reducing the virus spread to near zero was likely the big “unlock” for most economies.
Today, only a handful of countries seem to have placed the virus under control. (Economic-policy responses have been strong in many regions; most have been swift and effective enough to largely rule out the “first column” of scenarios.) Practically speaking, only countries that have already placed the virus under control can plausibly realize a “first-row outcome” (scenario A3 or A4) that lifts GDP to 2019’s year-end level or better by the end of 2020. Absent a widely available COVID-19 vaccine, most other countries are likely facing a “second-row outcome” (scenario A1 or A2), which means a one- to two-year delay in economic recovery. Global executives seem to agree; as our July survey shows, their pessimism is growing.
The arithmetic is straightforward. Countries are starting to report estimates of second-quarter GDP. Germany and the United States have registered 10.6 percent drops since the fourth quarter of 2019, while Spain and the United Kingdom have reported almost unimaginable declines of 22.7 and 22.1 percent, respectively. From this trough, growth would need to average 5 to 12 percent for two consecutive quarters to return GDP to the level at which it started the year.
Our new research looking for visible indicators of economic activity that would suggest such a rebound in growth finds them only in the countries that have successfully placed the virus under control. The evidence heavily suggests that a multifaceted public-health response that goes well beyond a simple transient lockdown is a necessary first step to restore confidence and create the conditions for growth.
It won’t be cheap: the cost of getting the virus under control is likely measured in the billions, or perhaps hundreds of billions, of dollars. But it is also clear that the opportunity cost of waiting is almost surely measured in unknown thousands of lives and trillions of dollars. The impact of delay is not linear. For every three months we delay in getting the virus under control, we push back the return of GDP to precrisis levels by about six months. Time is the enemy of both lives and livelihoods…”
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