Now: companies and executives face a challenging reality
Our global survey started on 5 February and early responses were cautious on economic outlook. This dropped after the S&P jumped to its record high on 19 February. Given that the region was already dealing with the impact of COVID-19 when the survey began, Asia-Pacific responses did not drop as drastically as global responses after 19 February 2020.
Governments are taking measures to save lives and livelihoods, and contain the pandemic by closing borders, implementing stringent safe distancing measures and enforcing telecommuting. Ninety-four percent of Asia-Pacific respondents have started to experience the economic implications on their businesses and expect the global economy to be severely impacted by COVID-19.
With every sector experiencing the negative effects of COVID-19, either directly or indirectly, 96% of Global and Asia-Pacific respondents say that they will see a decline in profitability and significant pressure on margins. In response, Asia-Pacific companies are taking a sharper review of liquidity, monitoring direct cost escalations and their impact on margins, intervening and renegotiating contracts, revisiting financial plans, and reviewing ongoing investment initiatives and discretionary expenses.
Fifty-five percent of Asia-Pacific respondents are expecting a longer U-shaped recovery that will extend into 2021. Finding ways to reimagine business-as-usual in an unusual environment requires a deeper understanding of how COVID-19 is changing consumer behavior, employee engagement, new policies and government response. Companies have to focus on developing multiple scenarios to imagine the next phase so that they build agility and respond fast enough to evolving market conditions.
Already, executive expectations have changed significantly from just six months ago. From 72% who expressed positivity about global economic growth in October 2019, positive sentiment had dropped to 21% in early February 2020, and worsened to just 14% between mid-February and when our survey closed in April. Locally, positive sentiment before 19 February was at 41%, down from 58% in October 2019, dropping to just 16% between 19 February and the close of our survey in April. Our results show a clear shift in economic confidence before mid-February for both global and local economies, but especially after 19 February 2020 when the S&P rose to its record high.
Confidence in major economic indicators, such as corporate earnings, short-term market stability, credit availability and equity valuation, has also dropped significantly compared with October 2019.
To help businesses and people weather the impact of COVID-19, governments around the world are proactively offering rescue packages. Across the Asia-Pacific region, government interventions have been primarily focused on access to cash, reduced costs and access to credit to strengthen local economies and support business continuity. Their primary objective is to secure the livelihoods of people in the most pressured sectors and allow businesses to find a new normalcy through the crisis by reducing costs and providing access to liquidity. See EY’s Global COVID-19 Stimulus Tracker.
- In China, after injecting 1.2 trillion yuan (US$172b) via reverse repos funds into the market, the central bank injected another 50 billion yuan (US$7.35b), the government has also expanded loan financing to key industries, such as manufacturing, private enterprises and small-sized enterprises with marginal profit.
- In Australia, the government is providing economic support for the economy of A$320b, representing 16.4% of GDP.
- The Singapore government has introduced three rescue packages now aggregating to almost S$60b (US$42b), primarily focused on costs, cash and credit for hard-hit sectors and business continuity.
- In Malaysia, the government has put together a RM250b (US$58b) economic rescue package. This includes special allowances for health care providers, one-off cash aid and a microcredit scheme for small- and medium-size enterprises (SMEs).
- The Japanese government is contemplating a US$1 trillion rescue package that will be approximately 20% of its GDP, offering cash payouts to households and non-direct spending measures, such as credit lines and guarantees.
- In South Korea, the government is directing 11.7t won (US$13.7b) to the health system, childcare and outdoor markets.
Next: Asia-Pacific executives take early action to address business impacts
Many Asia-Pacific companies experienced the pandemic earlier than the rest of the world. These businesses have seen the immediate and dramatic impact, resulting in a shift in business models. With stricter safe distancing in place, businesses have accelerated their use of technologies to enable communication, learning, work and delivery of goods and services. Many companies have begun to realize that COVID-19 has impacted, perhaps permanently, areas such as supply chain, speed to automation, consumer behavior and workforce management.
Global supply chain was an issue that came into focus when the US-China trade tensions escalated and has become a sharp focus since the beginning of the outbreak in early January. In response, 67% of Asia-Pacific respondents (73% of Chinese respondents) say their companies have actively taken steps to change, versus 52% of global companies. Similarly, in terms of speed to automation, 47% of Asia-Pacific respondents say they are taking decisive action versus 36% of global respondents.
The COVID-19 crisis has also fundamentally changed the way we work and communicate with our stakeholders. Fifty-five percent of Asia-Pacific respondents (70% of Chinese respondents), versus 39% of global respondents, say they are taking action to change the way they manage their workforce.