Southeast Asian executives concerned about the impact of COVID-19 should take the opportunity to plan beyond the crisis.
Facing the challenge of a global pandemic, global and Southeast Asian (SEA) business leaders find themselves trying to manage a crisis that few were prepared for. According to the 22nd edition of the EY Global Capital Confidence Barometer (pdf) which surveyed more than 2,900 C-suite executives globally, respondents anticipate a prolonged and deeper impact on the economy. In the near-term, they are focusing on developing resilience in their supply chains, protecting their revenues and managing their margins and profitability, while reconfiguring capital allocation and M&A plans for the post-crisis world.
Nearly nine-tenths (88%) of SEA respondents (which includes 260 respondents from Indonesia, Malaysia, Philippines, Singapore, Thailand and Vietnam), expect the COVID-19 pandemic to have a severe impact on the global economy in the form of depressed consumer sentiment, a deep decline in consumption and disrupted supply chain.
Interestingly, although respondents are concerned over the global economy, they are relatively more confident about the local economy, despite the high level of interdependence with the rest of the world. Only a third (32%) of SEA respondents believe that COVID-19 will severely impact the local economy.
Expectations shift from a year ago
Executives’ expectations toward economic growth have changed significantly from the year before. Then, 97% of SEA respondents believed that global economic growth was stable or positive. The sentiment dropped to 73% in early February 2020, and further dipped to 48% when the survey closed in March.
Cross-sector research findings show that organizations no longer expect to experience a quick snapback or a V-shaped recovery that would see a return to normal economic activity in the third quarter of 2020. A few sectors, such as technology and pharmaceuticals, may buck the trend and emerge from the crisis unchanged or even stronger. However, for other sectors, this is a moment of reckoning. Industries such as automotive and transportation, advanced manufacturing and consumer are seen taking the largest hit.
This pandemic will likely lead to the transformation (e.g., diversified industrials) or reshaping (e.g., oil and gas) of industries where demand may return, but a change to operating and business models will be necessary. Among these sectors, we expect to see more digitization and robotics. For some sectors, such as physical retail, this crisis will likely hasten their decline, as we have seen in recent news about the collapse of certain fashion brands.
Given these uncertainties, nearly two-thirds (64%) of SEA respondents say they expect more of a U-shaped recovery, with a longer period of slower economic activity extending into 2021.