Our latest perspectives on the coronavirus outbreak, the twin threats to lives and livelihoods, and how organizations can prepare for the next normal.

COVID-19: Briefing note, May 13, 2020

Emerging evidence provides some tantalizing glimpses into the epidemiology of the global pandemic.

By Matt Craven, Mihir Mysore, and Matthew Wilson


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As the reopening of economies continues across much of Europe and North America, it’s worth taking stock of the epidemiological situation and trends that will define the months ahead. At the time of this writing, the official counts of cases and deaths from COVID-19 have passed four million and 280,000, respectively. Recent studies have made increasingly clear that each of these figures is a significant underestimate. Population antibody surveys suggest that official counts are underestimating the true number of cases by a factor of five or more (although in several cases the methodology has been called into question) (Exhibit 1).

Exhibit 1

Comparisons of 2020 and 2019 mortality rates show that substantially more people are dying this year, although we don’t know how much of this is due to missed deaths from COVID-19 rather than excess mortality from other causes (Exhibit 2).

Exhibit 2

The pandemic and public health—five trends to watch

With lives at stake, a thoughtful approach is paramount. Here are the five emerging trends that private-sector leaders need to monitor.

There are still many places where the epidemic is getting worse

While much of the media narrative is about reopening, many countries, including several of the largest emerging economies, are still on the “upslope” of the epidemic, with daily case counts increasing (Exhibit 3). While an increasing number of countries and regions have proven that they can use lockdowns to drive a reduction in cases, to date, we have few examples of success outside higher-income countries. The next few weeks will be critical tests of our ability to “bend the curve” in more countries with varying contexts and healthcare capacity. In some of these countries, the absolute number of deaths is relatively low; interventions against COVID-19 will need to be viewed through the lens of both lives and livelihoods.

Exhibit 3

Reopening is a massive natural experiment—make sure you learn from it

We have never before attempted to shut down the modern global economy, much less reopen it in the setting of an ongoing pandemic. We have a few examples of strategies that seem to work better, or worse, but none of us know with any certainty the best actions. Even places with strong initial responses like Hong Kong and Singapore have faced challenges as they reopen.1 China has also seen an increase in cases in the past few days.2

In the United States, there is only a loose correlation between disease prevalence and plans for reopening. States with more cases generally plan to reopen later, but there are exceptions.

A similar point can be made about businesses’ plans to reopen. Companies are planning different approaches, even based on the same underlying fact base. This implies that leaders across the public and private sectors should build learning and adaptation into their reopening plans from the start. Relevant lessons might come from other geographies, other sectors, or from peers and competitors. Leaders should be prepared to incorporate new information and alter their approaches, either incrementally or radically, as new information becomes available.

Resurgence seems to be not a question of if but when, where, and how bad. Many experts are focused on a potential second wave of COVID-19 in the northern hemisphere this autumn.3 This is certainly possible. But focusing on the risks of autumn and winter causes us to look past the summer, which is risky because it is sooner and because it is when many jurisdictions will be reopening and testing.For the full set of our latest perspectives on COVID-19, download our briefing note and full briefing materials.

R is important, but so is the absolute number of new cases

Over the past few months, many have become more familiar with epidemiological concepts like the reproduction number (R) of a virus. R defines the transmissibility of a pathogen, as measured by the average number of people to whom each infected person transmits. R is a measure of change; it tells us how fast the epidemic will expand or shrink. Values greater than one define a growing epidemic, while those less than one define a shrinking one.

R has been getting a lot of attention, for example, in defining the packages of interventions that can yield R<1 in a given setting. But the absolute number of cases is also important. Imagine two cities, each with an R of 0.9, implying a slightly declining epidemic. But one of the cities has 1,000 new cases per day and the other has ten. The former faces a far higher risk in reopening than the latter.

In practice, we are seeing countries and regions take divergent approaches to this question (Exhibit 4). Hubei Province in China waited until reported cases were near zero to reopen, whereas Italy and Spain took the first steps to reopening with daily case counts at more than 1,000. Every location needs to balance public-health and economic imperatives; we can’t say which approach is better, but we are likely to learn more about what works in the weeks and months ahead.

Exhibit 4

It’s (still) all about testing, tracing, and targeted quarantine

Significant resources are required to run a program of testing, contact tracing, isolation, and quarantine at the required scale, but relative to the economics of lockdowns or global recession, these costs are trivial. Many countries are still far short of where they need to be on testing, and contact-tracing programs remain a patchwork. Our recent article provides more details on contact tracing. Strengthening these programs remains an urgent priority for many geographies. This point is no less important for having been made frequently.

In any country, here are the four metrics to watch in assessing the strength of test, trace, and quarantine efforts:

An element of transmission dynamics now beginning to receive more attention is transmission within households.4 We may need to rethink the current model of home isolation and develop modified strategies for mild and asymptomatic cases given that isolation can prove difficult for many. Any new model should of course ensure a comfortable experience for those who test positive, so that they’re strongly inclined to follow the recommended approach.

Innovation—and clinical evidence—leads to hope

The speed and scale of the R&D response to the COVID-19 outbreak is unprecedented in human history, with billions of dollars being spent and committed in pursuit of drugs, vaccines, and diagnostics for the virus. Today, there are more than 150 vaccines in the pipeline, and 200 drug candidates. On diagnostics, beyond the RT-PCR5 and classic lateral-flow immunoassays already in use for many viral and antibody tests, new technologies such as CRISPR6 have already been granted emergency-use authorization by the US Food and Drug Administration.7

The past few months have seen the launch of numerous trials in an effort to find therapies and vaccines—with some challenges from studies that are too small in size, or not randomized or controlled. As of early May, more than 1,700 trials are in progress targeting COVID-19 and related complications. More of these are randomized and controlled clinical studies—and some are starting read out results, providing evidence to support new approaches to prevent and manage COVID-19 infection and associated complications. The expert consensus is that enhanced treatments for COVID-19 will likely be available by the end of 2020; and only 12 to 18 months will likely be needed8 to bring a vaccine to market at sufficient scale for widespread immunization, compared with the typical five or more years. Some developers have even indicated a vaccine may be available sooner for limited use, with an emergency-use authorization for health workers issued as early as this fall.9

Here are five areas to watch:

About the authors

Matt Craven, MD, is a partner in McKinsey’s Silicon Valley office. Mihir Mysore is a partner in the Houston office. Matt Wilson is a senior partner in the New York office.

COVID-19: Briefing note, April 13, 2020

Our latest perspectives on the coronavirus pandemic.

By Matt Craven, Mihir Mysore, Shubham Singhal, and Matt Wilson

In this note, we offer some of our latest insights on the COVID-19 pandemic, starting with a survey of the current epidemiology and the five dynamics leaders need to watch: the efficacy of the surge in critical care, the expansion of testing and other traditional approaches, the development of antibody testing, the unknown nature of immunity, and a wave of innovation that might produce treatments and vaccines.

We then highlight four of our many recently published articles, each designed to help senior executives think through the challenges of restarting economies.These and many more articles are available in our collection of coronavirus thinking.

The outbreak is moving quickly, and some perspectives here may soon be out of date. This article reflects our perspective as of April 13, 2020. We will update it regularly as the crisis evolves.

COVID-19: Where we are, and where we might be heading

COVID-19 continues to spread rapidly around the world. Almost every country has reported cases, but the burden is asymmetrically distributed. In the past seven days (April 6–12), 46 percent of new confirmed cases have been reported in Europe and 39 percent in the United States. To an extent, that’s because countries are at different stages of the pandemic. Some that were effective at initial containment, such as Singapore and Hong Kong, have seen resurgence and are implementing additional measures to address it. Others, such as many countries in Western Europe, have seen the number of new cases plateau or begin to decline and are debating the right approach to reopening their economies. Some countries appear to be at the peak of infection and are urgently building surge capacity in their health systems. In other parts of the world, the number of cases is rising rapidly. Countries such as Russia and Turkey are seeing a recent acceleration. India too has experienced a significant increase in the number of cases since the beginning of April and has evolved its response strategy, including extending the nationwide lockdown.

The public-health tools and approaches to be deployed vary considerably based on this status (Exhibit 1). Measures including physical distancing, travel restrictions, effective use of personal protective equipment (PPE), testing and tracing, and healthcare surge capacity require more or less emphasis, depending on epidemic phase and local context. Local use of these measures varies considerably—physical distancing may be near-impossible in crowded urban settings, for example, and the apps and digital tools for contact tracing like those used in China may not be acceptable in other parts of the world. Another challenge is the dependencies among these measures: to take one example, the timeliness and stringency of physical distancing measures substantially influences how other tools should be deployed.

Exhibit 1

Although a consensus has emerged around the use of physical distancing to slow transmission in many high-prevalence settings, a few countries, such as Sweden, are pursuing an alternative “herd immunity” strategy focused on protecting the most vulnerable populations while using only limited distancing measures to flatten the curve for others. The goals are to maintain many aspects of economic and social life today and, over time, to develop a large enough pool of exposed people (about 70 to 80 percent) to “protect the herd.” Other countries are closely watching the outcome of this approach.

The months ahead will probably be quite volatile and dynamic. It now appears likely that some places will experience a local resurgence as restrictions are lifted and economies reopen. That will influence countries at the earliest stages. For example, Singapore has seen a resurgence mainly from imported cases, which have led to local transmission; this suggests that restrictions on international travel may continue. As China gradually reopens, the tactics it used (including group-based isolation models and setting a norm of wearing masks in the workplace) and their efficacy will inform approaches around the world. Western Europe’s experience in relaxing restrictions, and the most successful approaches there, will inform the approaches deployed in the United States.

Considering the variety of approaches in use, public understanding and consensus will evolve day by day. We will continue to find out more about the coronavirus—how it is mutating, the duration of immunity, its transmission dynamics, and so on. For example, it now appears that the virus probably won’t be highly seasonal, given the recent rapid growth in a number of hot spots in the Southern Hemisphere. But it is still possible that the arrival of summer in the Northern Hemisphere will slow transmission somewhat, as some studies in both labs and natural contexts suggest.12

With all this in mind, we believe that leaders should closely watch five health-response dynamics in the coming weeks:

Exhibit 2

Getting back to work: Four insights

The pandemic’s economic challenges are unprecedented. Since the crisis began, McKinsey has published more than 70 articles on the extraordinary public-health and economic impact, as well as the ideas that government and business leaders need to safeguard lives and livelihoods. In the past week, four articles have captured the attention of leaders around the world. We summarize these articles here and invite you to take in the full collection.

How to restart national economies during the coronavirus crisis

by Andres Cadena, Felipe Child, Matt Craven, Fernando Ferrari, David Fine, Juan Franco, and Matthew Wilson

The threat of COVID-19 to lives and livelihoods will fully resolve only when enough people are immune to the disease to blunt transmission, either from a vaccine or direct exposure. Until then, governments that want to restart their economies must have public-health systems that are strong enough to detect and respond to cases.

The first and most obvious factor in determining readiness is the number of new cases in a given area. Regions with significant ongoing transmission should expect that restarting economic activity will only lead to more transmission. Case numbers and, more importantly, hospitalizations need to be low enough for a health system to manage individually rather than through mass measures. A second factor in thinking about this is the strength of the systems in place for detecting, managing, and preventing new cases, including adequate medical capacity, especially of intensive care units (ICUs), for those with severe disease; the ability to perform a diagnostic test for COVID-19 with a fast turnaround time; and several other elements.

If we combine a system’s level of strength with an assessment of the intensity of virus transmission, we can evaluate any region’s readiness to restart activity (Exhibit 3). These two dimensions determine four stages of readiness to reopen the economy, with Stage 4 the least ready and Stage 1 the most.

Exhibit 3

Europe needs to prepare now to get back to work—safely

by David Chinn, Hauke Engel, Daniel Härtl, Milena Quittnat, Pal Erik Sjatil, Marja Seidel, Sven Smit, Sebastian Stern, and Eckart Windhagen

As European countries begin to consider how to exit lockdowns, local leaders are often the people best placed to evaluate conditions and impose measures that maximize economic recovery while protecting public health. Decisions about which measures to deploy, when and where, should be made locally—if possible, district by district—because there are material differences in the severity of the crisis and economic circumstances (Exhibit 4).

Exhibit 4

Authorities will need three essential elements to ensure robust implementation. First, leaders will require effective, ready-to-act local-authority structures. In Italy, regional governments collaborated with Rome to establish a national lockdown that allowed regions to apply more stringent rules as necessary.

Second, solutions and directives must be clear and simple, so that the public and businesses can understand them. This might require using new communication channels, such as mobile messaging.

Third, measures must be consistent. If the guidance one day is that shops can admit five people at a time for six hours a day and in the next week that rule changes to two people for eight hours, the results will be irritation, noncompliance, and the erosion of trust in public authorities.

Winning the (local) COVID-19 war

by Tom Latkovic, Leah Pollack, and Jordan VanLare, MD

Local US leaders, such as mayors and governors, have an outsized role in the fight against COVID-19. We see six domains for engagement:

Could the next normal emerge from Asia?

by Oliver Tonby and Jonathan Woetzel

The COVID-19 outbreak began in Asia—but so have early indications of containment, new protocols, and the resumption of economic activity. Although the risk of another outbreak remains, economic-activity indicators in China suggest that urban activities are returning to pre-outbreak levels. Traffic congestion and residential-property sales are close to where they stood in early January 2020. Air pollution and coal consumption have returned to 74 and 85 percent, respectively, of their January 1 levels. A recent McKinsey survey of 2,500 Chinese consumers indicates “cautious optimism”—a gradual regaining of confidence, which should increase spending. At this moment, strong public-health responses in China, Singapore, and South Korea appear to have been successful. Significant evidence indicates that the curve of cumulative confirmed COVID-19 patients in Asia is becoming flatter.

As companies in the region resume activity, they may be the world’s first to shape the “next normal.” What will that look like? Four dimensions could define it:

About the authors

Matt Craven, MD, is a partner in McKinsey’s Silicon Valley office. Mihir Mysore is a partner in the Houston office. Shubham Singhal is a senior partner in the Detroit office. Matt Wilson is a senior partner in the New York office.

COVID-19: Briefing note, March 30, 2020

Our latest perspectives on the coronavirus pandemic.

By Matt Craven, Mihir Mysore, Shubham Singhal, Sven Smit, and Matt Wilson

The pandemic continues to expand. More than 175 countries and territories have reported cases of COVID-19, the disease caused by the coronavirus (SARS-CoV-2). Case growth has accelerated to more than 735,000 cases and 35,000 deaths as of March 30. Some geographies have a handful of cases, others with early community transmission have a few hundred, and those with uncontrolled, widespread transmission have tens of thousands. Governments have launched unprecedented public-health and economic responses. The situation evolves by the day.

In this note, we offer some of our latest insights, starting with five likely epidemiologic swing factors that will largely determine the contours of the pandemic in the next year. We then summarize two new articles designed to help senior executives lead through the crisis. In “Beyond coronavirus: The path to the next normal,” we outline five time frames to help leaders organize their thinking and responses. And in “Safeguarding our lives and our livelihoods: The imperative of our time,” we explain how business and society can and must take on both spheres of action, right away. These and many more are available in our collection of coronavirus thinking. We conclude with a short list of the areas in which executives should be concentrating their thought and attention.

Epidemiological swing factors for COVID-19

Every country is looking to join the few that have controlled the epidemic for now and are focusing on preventing a resurgence. The next stages in every country are unknowable (Exhibit 1). But in our view, the spread or control of the virus in the next year comes down to five factors:

Exhibit 1

Two new insights

We have recently published several new articles on the pandemic. Two have captured the attention of leaders worldwide. We summarize them here and invite you to take in the full case in our collection.

Beyond coronavirus: The path to the next normal

By Kevin Sneader and Shubham Singhal

What will it take to navigate this crisis, now that our traditional metrics and assumptions have been rendered irrelevant? More simply put, it’s our turn to answer a question that many of us once asked of our grandparents: What did you do during the war?

Our answer is a call to act across five stages, leading from the crisis of today to the next normal that will emerge after the battle against coronavirus has been won: Resolve, Resilience, Return, Reimagination, and Reform (Exhibit 2).

Exhibit 2

Collectively, these five stages represent the imperative of our time: the battle against COVID-19 is one that leaders today must win if we are to find an economically and socially viable path to the next normal.

Safeguarding our lives and our livelihoods: The imperative of our time

By Sven Smit, Martin Hirt, Kevin Buehler, Susan Lund, Ezra Greenberg, and Arvind Govindarajan

We see enormous energy invested in suppressing the coronavirus, while many urge even faster and more rigorous measures. We also see enormous energy expended on stabilizing the economy through public-policy responses. However, to avoid permanent damage to our livelihoods, we need to find ways to “timebox” this event: we must think about how to suppress the virus and shorten the duration of the economic shock.

To aid decision makers, we have developed scenarios, based on three likely paths for the spread of the virus and the public health response, and three potential levels of effectiveness for governmental economic response (Exhibit 3).

Exhibit 3

Many leaders currently expect one of the scenarios shaded in Exhibit 3 (A1–A4) to materialize. In each of these, the COVID-19 spread is eventually controlled, and catastrophic structural economic damage is avoided. These scenarios describe a global average, while situations will inevitably vary by country and region. But all four of these scenarios lead to V- or U-shaped recoveries.

Other, more extreme scenarios can also be conceived, and some of them are already being discussed (B1–B5 in Exhibit 3). One can’t exclude the possibility of a “black swan of black swans”: structural damage to the economy, caused by a yearlong spread of the virus until a vaccine is widely available, combined with the lack of policy response to prevent widescale bankruptcies, unemployment, and a financial crisis.

Steps to take now

Amid the chaos and all the incoming advice, it’s hard to know exactly what leaders should do today. We suggest they focus their time on four areas:

The next normal will look unlike any in the years preceding the coronavirus, the pandemic that changed everything. In these briefing notes, we aim to provide leaders with an integrated perspective on the unfolding crisis and insight into the coming weeks and months.

About the authors

Matt Craven is a partner in McKinsey’s Silicon Valley office, Mihir Mysore is a partner in the Houston office, Shubham Singhal is a senior partner in the Detroit office, Sven Smit is a senior partner in the Amsterdam office, and Matt Wilson is a senior partner in the New York office.

COVID-19: Briefing note, March 16, 2020

Current perspectives on the coronavirus outbreak.

At the time of writing, there have been more than 160,000 confirmed cases of COVID-19 and more than 6,000 deaths from the disease. Older people, especially, are at risk (Exhibit 1). More than 140 countries and territories have reported cases; more than 80 have confirmed local transmission. Even as the number of new cases in China is falling (to less than 20, on some days), it is increasing exponentially in Italy (doubling approximately every four days). China’s share of new cases has dropped from more than 90 percent a month ago to less than 1 percent today.

Exhibit 1

WHO declared COVID-19 a pandemic on March 11, 2020. In its message, it balanced the certainty that the coronavirus (SARS-CoV-2) will inevitably spread to all parts of the world, with the observation that governments, businesses, and individuals still have substantial ability to change the disease’s trajectory. In this note, we describe emerging archetypes of epidemic progressions; outline two scenarios for the pandemic and its economic effects; and observe some of the ways that business can improve on its early responses.

Our perspective is based on our analysis of past emergencies and our industry expertise. It is only one view, however. Others could review the same facts and emerge with a different view. Our scenarios should be considered only as two among many possibilities. This perspective is current as of March 16, 2020. We will update it regularly as the outbreak evolves.

Archetypes for epidemic progression

Many countries now face the need to bring widespread community transmission of coronavirus under control. While every country’s response is unique, there are three archetypes emerging—two successful and one not—that offer valuable lessons. We present these archetypes while acknowledging that there is much still to be learned about local transmission dynamics and that other outcomes are possible:

Exhibit 2

There are also other approaches being considered (such as a focus on reaching herd immunity); the impact of these is unclear.

Two scenarios

Based on new information that emerged last week, we have significantly updated and simplified our earlier scenarios. A number of respected institutions are now projecting very high case counts. The most pessimistic projections typically give the virus full credit for exponential growth but assume that humans will not respond effectively—that is, they assume that many countries will fall into the third archetype described earlier. We believe this is possible but by no means certain. The scenarios below outline two ways that the interplay between the virus and society’s response might unfold and the implications on the economy in each case. Exhibit 3 lays out a number of critical indicators that may provide early notice of which scenario is unfolding.Exhibit 3

Delayed recovery

Epidemiology. In this scenario, new case counts in the Americas and Europe rise until mid-April. Asian countries peak earlier; epidemics in Africa and Oceania are limited. Growth in case counts is slowed by effective social distancing through a combination of national and local quarantines, employers choosing to restrict travel and implement work-from-home policies, and individual choices. Testing capacity catches up to need, allowing an accurate picture of the epidemic. The virus proves to be seasonal, further limiting its spread. By mid-May, public sentiment is significantly more optimistic about the epidemic. The Southern Hemisphere winter sees an uptick in cases, but by that point, countries have a better-developed playbook for response. While the autumn of 2020 sees a resurgence of infections, better preparedness enables continued economic activity.

Economic impact. Large-scale quarantines, travel restrictions, and social-distancing measures drive a sharp fall in consumer and business spending until the end of Q2, producing a recession. Although the outbreak comes under control in most parts of the world by late in Q2, the self-reinforcing dynamics of a recession kick in and prolong the slump until the end of Q3. Consumers stay home, businesses lose revenue and lay off workers, and unemployment levels rise sharply. Business investment contracts, and corporate bankruptcies soar, putting significant pressure on the banking and financial system.

Monetary policy is further eased in Q1 but has limited impact, given the prevailing low interest rates. Modest fiscal responses prove insufficient to overcome economic damage in Q2 and Q3. It takes until Q4 for European and US economies to see a genuine recovery. Global GDP in 2020 falls slightly.

Prolonged contraction

Epidemiology. In this scenario, the epidemic does not peak in the Americas and Europe until May, as delayed testing and weak adoption of social distancing stymie the public-health response. The virus does not prove to be seasonal, leading to a long tail of cases through the rest of the year. Africa, Oceania, and some Asian countries also experience widespread epidemics, though countries with younger populations experience fewer deaths in percentage terms. Even countries that have been successful in controlling the epidemic (such as China) are forced to keep some public-health measures in place to prevent resurgence.

Economic impact. Demand suffers as consumers cut spending throughout the year. In the most affected sectors, the number of corporate layoffs and bankruptcies rises throughout 2020, feeding a self-reinforcing downward spiral.

The financial system suffers significant distress, but a full-scale banking crisis is averted because of banks’ strong capitalization and the macroprudential supervision now in place. Fiscal and monetary-policy responses prove insufficient to break the downward spiral.

The global economic impact is severe, approaching the global financial crisis of 2008–09. GDP contracts significantly in most major economies in 2020, and recovery begins only in Q2 2021.

Responding to COVID-19: What companies are missing

Our conversations with hundreds of companies around the world on COVID-19 challenges have allowed us to compile a view of the major work streams that companies are pursuing (Exhibit 4).

Exhibit 4

While this list is fairly comprehensive, some companies are taking other steps. However, we have seen evidence that many companies are finding it hard to get the major actions right. We have consistently heard about five challenges.

Having an intellectual understanding isn’t the same as internalizing the reality

Exponential case-count growth is hard to internalize unless you have experienced it before. Managers who haven’t experienced this or been through a “tabletop” simulation are finding it difficult to respond correctly. In particular, escalation mechanisms may be understood in theory, but companies are finding them hard to execute in reality, as the facts on the ground don’t always conform to what it says in the manual. Crisis case studies are replete with examples of managers who chose not to escalate, creating worse issues for their institutions.

Employee safety is paramount, but mechanisms are ineffective

Policy making at many companies is scattershot, especially at those that haven’t yet seen the coronavirus directly. Many, such as professional-services and tech companies, lean very conservative: their protection mechanisms often add to a perception of safety without actually keeping people safer. For instance, temperature checks may not be the most effective form of screening, given that the virus may transmit asymptomatically. Asking employees to stay at home if they are unwell may do more to reduce transmissibility. Such policies are more effective if employees receive compensation protection—and insulation from other consequences too.

Some companies aren’t thinking through the second-order effects of their policies. For example, a ban on travel without a concomitant work-from-home policy can make the office very crowded, leading to higher risk of transmission. Others are adopting company-wide policies without thinking through the needs of each location and each employee segment.

Optimism about the return of demand is dangerous

Being optimistic about demand recovery is a real problem, especially for companies with working-capital or liquidity shortages and those veering toward bankruptcy. Troubled organizations are more likely to believe in a faster recovery—or a shallower downturn. Facing up to the possibility of a deeper, more protracted downturn is essential, since the options available now, before a recession sets in, may be more palatable than those available later. For example, divestments to provide needed cash can be completed at a higher price today than in a few weeks or months.

Assumptions across the enterprise are misaligned

Some companies are pursuing their coronavirus responses strictly within organizational silos (for example, the procurement team is driving supply-chain efforts, sales and marketing teams are working on customer communications, and so on). But these teams have different assumptions and tend to get highly tactical, going deep in their own particular patch of weeds rather than thinking about what other parts of the company are doing—or about what might come next.

The near term is essential, but don’t lose focus on the longer term (which might be worse)

Immediate and effective response is, of course, vital. We think that companies are by and large pursuing the right set of responses, as shown in Exhibit 4. But on many of these work streams, the longer-term dimensions are even more critical. Recession may set in. The disruption of the current outbreak is shifting industry structures. Credit markets may seize up, in spite of stimulus. Supply-chain resilience will be at a premium. It may sound impossible for management teams that are already working 18-hour days, but too few are dedicating the needed time and effort to responses focused on the longer term.

The coronavirus crisis is a story with an unclear ending. What is clear is that the human impact is already tragic, and that companies have an imperative to act immediately to protect their employees, address business challenges and risks, and help to mitigate the outbreak in whatever ways they can.

For the full set of our latest perspectives, please see the attached full briefing materials, which we will update regularly. We welcome your comments and questions at coronavirus_client_response@mckinsey.com.

For more of the latest information on COVID-19, please see reports from the European Centre for Disease Control and Prevention, the US Centers for Disease Control and Prevention, and WHO; and thelive tracker of global cases from Johns Hopkins University.

COVID-19: Briefing note, March 9, 2020

A range of outcomes is possible. Decision makers should not assume the worst.

Less than ten weeks have passed since China reported the existence of a new virus to the World Health Organization. This virus, now known as SARS-CoV-2, causing COVID-19 disease, spread quickly in the city of Wuhan and throughout China. The country has experienced a deep humanitarian challenge, with more than 80,000 cases and more than 3,000 deaths. COVID-19 progressed quickly beyond China’s borders. Four other major transmission complexes are now established across the world: East Asia (especially South Korea, with more than 7,000 cases, as well as Singapore and Japan), the Middle East (centered in Iran, with more than 6,500 cases), Europe (especially the Lombardy region in northern Italy, with more than 7,300 cases, but with widespread transmission across the continent), and the United States, with more than 200 cases. Each of these transmission complexes has sprung up in a region where millions of people travel every day for social and economic reasons, making it difficult to prevent the spread of the disease. In addition to these major complexes, many other countries have been affected. Exhibit 1 (see an updated version of the exhibit here) offers a snapshot of the current progress of the disease and its economic impact.

The next phases of the outbreak are profoundly uncertain. In our view, the prevalent narrative, focused on pandemic, to which both markets and policy makers have gravitated as they respond to the virus, is possible but underweights the possibility of a more optimistic outcome. In this briefing note, we attempt to distinguish the things we know from those we don’t, and the potential implications of both sets of factors. We then outline three potential economic scenarios, to illustrate the range of possibilities, and conclude with some discussion of the implications for companies’ supply chains, and seven steps businesses can take now to prepare.

Our perspective is based on our analysis of past emergencies and on our industry expertise. It is only one view, however. Others could review the same facts and emerge with a different view. Our scenarios should be considered only as three among many possibilities. This perspective is current as of March 9, 2020. We will update it regularly as the outbreak evolves.

What we know, and what we are discovering

What we know. Epidemiologists are in general agreement on two characteristics of COVID-19:

Exhibit 2

What we are still discovering. Three characteristics of the virus are not fully understood, but are key variables that will affect how the disease progresses, and the economic scenario that evolves:

These factors notwithstanding, we have seen that robust public-health responses, like those in China outside Hubei and in Singapore, can help stem the epidemic. But it remains to be seen how these factors will play out and the direct impact they will have. The economic impact too will vary considerably.

Economic impact

In our analysis, three broad economic scenarios might unfold: a quick recovery, a global slowdown, and a pandemic-driven recession. Here, we outline all three. We believe that the prevalent pessimistic narrative (which both markets and policy makers seem to favor as they respond to the virus) underweights the possibility of a more optimistic outcome to COVID-19 evolution.

Quick recovery

In this scenario, case count continues to grow, given the virus’s high transmissibility. While this inevitably causes a strong public reaction and drop in demand, other countries are able to achieve the same rapid control seen in China, so that the peak in public concern comes relatively soon (within one to two weeks). Given the low fatality rates in children and working-age adults, we might also see levels of concern start to ebb even as the disease continues to spread. Working-age adults remain concerned about their parents and older friends, neighbors, and colleagues, and take steps to ensure their safety. Older people, especially those with underlying conditions, pull back from many activities. Most people outside the transmission complexes continue their normal daily lives.

The scenario assumes that younger people are affected enough to change some daily habits (for example, they wash hands more frequently) but not so much that they shift to survival mode and take steps that come at a higher cost, such as staying home from work and keeping children home from school. A complicating factor, not yet analyzed, is that workers in the gig economy, such as rideshare drivers, may continue to report to work despite requests to stay home, lest they lose income. This scenario also presumes that the virus is seasonal.

In this scenario, our model developed in partnership with Oxford Economics suggests that global GDP growth for 2020 falls from previous consensus estimates of about 2.5 percent to about 2.0 percent. The biggest factors are a fall in China’s GDP from nearly 6 percent growth to about 4.7 percent; a one-percentage-point drop in GDP growth for East Asia; and drops of up to 0.5 percentage points for other large economies around the world. The US economy recovers by the end of Q1. By that point, China resumes most of its factory output; but consumer confidence there does not fully recover until end Q2. These are estimates, based on a particular scenario. They should not be considered predictions.

Global slowdown

This scenario assumes that most countries are not able to achieve the same rapid control that China managed. In Europe and the United States, transmission is high but remains localized, partly because individuals, firms, and governments take strong countermeasures (including school closings and cancellation of public events). For the United States, the scenario assumes between 10,000 and 500,000 total cases. It assumes one major epicenter with 40 to 50 percent of all cases, two or three smaller centers with 10 to 15 percent of all cases, and a “long tail” of towns with a handful or a few dozen cases. This scenario sees some spread in Africa, India, and other densely populated areas, but the transmissibility of the virus declines naturally with the northern hemisphere spring.

This scenario sees much greater shifts in people’s daily behaviors. This reaction lasts for six to eight weeks in towns and cities with active transmission, and three to four weeks in neighboring towns. The resulting demand shock cuts global GDP growth for 2020 in half, to between 1 percent and 1.5 percent, and pulls the global economy into a slowdown, though not recession.

In this scenario, a global slowdown would affect small and mid-size companies more acutely. Less developed economies would suffer more than advanced economies. And not all sectors are equally affected in this scenario. Service sectors, including aviation, travel, and tourism, are likely to be hardest hit. Airlines have already experienced a steep fall in traffic on their highest-profit international routes (especially in Asia–Pacific). In this scenario, airlines miss out on the summer peak travel season, leading to bankruptcies (FlyBe, the UK regional carrier, is an early example) and consolidation across the sector. A wave of consolidation was already possible in some parts of the industry; COVID-19 would serve as an accelerant.

In consumer goods, the steep drop in consumer demand will likely mean delayed demand. This has implications for the many consumer companies (and their suppliers) that operate on thin working-capital margins. But demand returns in May–June as concern about the virus diminishes. For most other sectors, the impact is a function primarily of the drop in national and global GDP, rather than a direct impact of changed behaviors. Oil and gas, for instance, will be adversely affected as oil prices stay lower than expected until Q3.

Pandemic and recession

This scenario is similar to the global slowdown, except it assumes that the virus is not seasonal (unaffected by spring in the northern hemisphere). Case growth continues throughout Q2 and Q3, potentially overwhelming healthcare systems around the world and pushing out a recovery in consumer confidence to Q3 or beyond. This scenario results in a recession, with global growth in 2020 falling to between –1.5 percent and 0.5 percent.

Supply-chain challenges

For many companies around the world, the most important consideration from the first ten weeks of the COVID-19 outbreak has been the effect on supply chains that begin in or go through China. As a result of the factory shutdowns in China during Q1, many disruptions have been felt across the supply chain, though the full effects are of course still unclear.

Hubei is still in the early phases of its recovery; case count is down, but fatality rates remain high, and many restrictions remain that will prevent a resumption of normal activity until early Q2. In the rest of China, however, many large companies report that they are running at more than 90 percent capacity as of March 1. While some real challenges remain, such as lower than usual availability of migrant labor, there is little question that plants are returning back to work quickly.

Trucking capacity to ship goods from factories to ports is at about 60 to 80 percent of normal capacity. Goods are facing delays of between eight and ten days on their journey to ports.

The Baltic Dry Index (which measures freight rates for grains and other dry goods around the world) dropped by about 15 percent at the onset of the outbreak but has increased by nearly 30 percent since then. The TAC index, which measures air-freight prices, has also risen by about 15 percent since early February.

In the next few months, the phased restart of plants outside Hubei (and the slower progress of plants within Hubei) is likely to lead to challenges in securing critical parts. As inventories are run down faster, parts shortages are likely to become the new reason why plants in China cannot operate at full capacity. Moreover, plants that depend on Chinese output (which is to say, most factories around the world) have not yet experienced the brunt of the initial Chinese shutdown and are likely to experience inventory “whiplash” in the coming weeks.

Perhaps the biggest uncertainty for supply-chain managers and production heads is customer demand. Customers that have prebooked logistics capacity may not use it; customers may compete for prioritization in receiving a factory’s output; and the unpredictability of the timing and extent of demand rebound will mean confusing signals for several weeks.

Responding to COVID-19

In our experience, seven actions can help businesses of all kinds. We outline them here as an aid to leaders as they think through crisis management for their companies. These are only guidelines; they are by no means exhaustive or detailed enough to substitute for a thorough analysis of a company’s particular situation.

Protect your employees. The COVID-19 crisis has been emotionally challenging for many people, changing day-to-day life in unprecedented ways. For companies, business as usual is not an option. They can start by drawing up and executing a plan to support employees that is consistent with the most conservative guidelines that might apply and has trigger points for policy changes. Some companies are actively benchmarking their efforts against others to determine the right policies and levels of support for their people. Some of the more interesting models we have seen involve providing clear, simple language to local managers on how to deal with COVID-19 (consistent with WHO, CDC, and other health-agency guidelines) while providing autonomy to them so they feel empowered to deal with any quickly evolving situation. This autonomy is combined with establishing two-way communications that provide a safe space for employees to express if they are feeling unsafe for any reason, as well as monitoring adherence to updated policies.

Set up a cross-functional COVID-19 response team. Companies should nominate a direct report of the CEO to lead the effort and should appoint members from every function and discipline to assist. Further, in most cases, team members will need to step out of their day-to-day roles and dedicate most of their time to virus response. A few workstreams will be common for most companies: a) employees’ health, welfare, and ability to perform their roles; b) financial stress-testing and development of a contingency plan; c) supply-chain monitoring, rapid response, and long-term resiliency (see below for more); d) marketing and sales responses to demand shocks; and e) coordination and communication with relevant constituencies. These subteams should define specific goals for the next 48 hours, adjusted continually, as well as weekly goals, all based on the company’s agreed-on planning scenario. The response team should install a simple operating cadence and discipline that focuses on output and decisions, and does not tolerate meetings that achieve neither.

Ensure that liquidity is sufficient to weather the storm. Businesses need to define scenarios tailored to the company’s context. For the critical variables that will affect revenue and cost, they can define input numbers through analytics and expert input. Companies should model their financials (cash flow, P&L, balance sheet) in each scenario and identify triggers that might significantly impair liquidity. For each such trigger, companies should define moves to stabilize the organization in each scenario (optimizing accounts payable and receivable; cost reduction; divestments and M&A).

Stabilize the supply chain. Companies need to define the extent and likely duration of their supply-chain exposure to areas that are experiencing community transmission, including tier-1, -2, and -3 suppliers, and inventory levels. Most companies are primarily focused on immediate stabilization, given that most Chinese plants are currently in restart mode. They also need to consider rationing critical parts, prebooking rail/air-freight capacity, using after-sales stock as a bridge until production restarts, gaining higher priority from their suppliers, and, of course, supporting supplier restarts. Companies should start planning how to manage supply for products that may, as supply comes back on line, see unusual spikes in demand due to hoarding. In some cases, medium or longer-term stabilization may be warranted, which calls for updates to demand planning, further network optimization, and searching for and accelerating qualification of new suppliers. Some of this may be advisable anyway, absent the current crisis, to ensure resilience in their supply chain—an ongoing challenge that the COVID-19 situation has clearly highlighted.

Stay close to your customers. Companies that navigate disruptions better often succeed because they invest in their core customer segments and anticipate their behaviors. In China, for example, while consumer demand is down, it has not disappeared—people have dramatically shifted toward online shopping for all types of goods, including food and produce delivery. Companies should invest in online as part of their push for omnichannel distribution; this includes ensuring the quality of goods sold online. Customers’ changing preferences are not likely to go back to pre-outbreak norms.

Practice the plan. Many top teams do not invest time in understanding what it takes to plan for disruptions until they are in one. This is where roundtables or simulations are invaluable. Companies can use tabletop simulations to define and verify their activation protocols for different phases of response (contingency planning only, full-scale response, other). Simulations should clarify decision owners, ensure that roles for each top-team member are clear, call out the “elephants in the room” that may slow down the response, and ensure that, in the event, the actions needed to carry out the plan are fully understood and the required investment readily available.

Demonstrate purpose. Businesses are only as strong as the communities of which they are a part. Companies need to figure out how to support response efforts—such as by providing money, equipment, or expertise. For example, a few companies have shifted production to create medical masks and clothing.

The checklist in Exhibit 3 can help companies make sure they are doing everything necessary.

Exhibit 3

COVID-19: Briefing note, March 2, 2020

The following is McKinsey’s perspective as of March 2, 2020.

What we know about the outbreak

COVID-19 crossed an inflection point during the week of February 24, 2020. Cases outside China exceeded those within China for the first time, with 54 countries reporting cases as of February 29. The outbreak is most concentrated in four transmission complexes—China (centered in Hubei), East Asia (centered in South Korea and Japan), the Middle East (centered in Iran), and Western Europe (centered in Italy). In total, the most-affected countries represent nearly 40 percent of the global economy. The daily movements of people and the sheer number of personal connections within these transmission complexes make it unlikely that COVID-19 can be contained. And while the situation in China has stabilized with the implementation of extraordinary public-health measures, new cases are also rising elsewhere, including Latin America (Brazil), the United States (California, Oregon, and Washington), and Africa (Algeria and Nigeria). The US Centers for Disease Control and Prevention has set clear expectations that the United States will experience community transmission, and evidence is emerging that it may be happening already.

While the future is uncertain, it is likely that countries in the four mature transmission complexes will see continued case growth; new complexes may emerge. This could contribute to a perception of “leakage,” as the public comes to believe that the infections aren’t contained. Consumer confidence, especially in those complexes, may erode, and could be further weakened by restrictions on travel and limits on mass gatherings. China will mostly likely recover first, but the global impact will be felt much longer. We expect a slowdown in global growth for 2020. In what follows, we review the two most likely scenarios for economic impact and recovery and provide insights and best practices on how business leaders can navigate this uncertain and fast-changing situation.

Economic impact

In our base-case scenario, continued spread within established complexes, as well as community transmission in new complexes, drives a 0.3- to 0.7-percentage-point reduction in global GDP growth for 2020. China, meanwhile, continues on its path to recovery, achieving a near-complete economic restart by mid-Q2 (in spite of the current challenges of slow permissions and lack of migrant-worker capacity). As other geographies experience continued case growth, it is likely that movement restrictions will be imposed to attempt to stop or slow the progression of the disease. This will almost certainly drive a sharp reduction in demand, which in turn lowers economic growth through Q2 and early Q3. Demand recovery will depend on a slowing of case growth, the most likely cause of which would be “seasonality”—a reduction in transmissions similar to that seen with influenza in the northern hemisphere as the weather warms. Demand may also return if the disease’s fatality ratio proves to be much lower than we are currently seeing.

Regions that have not yet seen rapid case growth (such as the Americas) are increasingly likely to see more sustained community transmission (for example, expansion of the emergency clusters in the western United States). Greater awareness of COVID-19, plus additional time to prepare, may help these complexes manage case growth. However, complexes with less robust health systems could see more general transmission. Lower demand could slow growth of the global economy between 1.8 percent and 2.2 percent instead of the 2.5 percent envisioned at the start of the year.

Unsurprisingly, sectors will be affected to different degrees. Some sectors, like aviation, tourism, and hospitality, will see lost demand (once customers choose not to eat at a restaurant, those meals stay uneaten). This demand is largely irrecoverable. Other sectors will see delayed demand. In consumer goods, for example, customers may put off discretionary spending because of worry about the pandemic but will eventually purchase such items later, once the fear subsides and confidence returns. These demand shocks—extended for some time in regions that are unable to contain the virus—can mean significantly lower annual growth. Some sectors, such as aviation, will be more deeply affected.

In the pessimistic scenario, case numbers grow rapidly in current complexes and new centers of sustained community transmission erupt in North America, South America, and Africa. Our pessimistic scenario assumes that the virus is not highly seasonal, and that cases continue to grow throughout 2020. This scenario would see significant impact on economic growth throughout 2020, resulting in a global recession.

In both the base-case and pessimistic scenarios, in addition to facing consumer-demand headwinds, companies will need to navigate supply-chain challenges. Currently, we see that companies with strong, centralized procurement teams and good relationships with suppliers in China are feeling more confident about their understanding of the risks these suppliers face (including tier-2 and tier-3 suppliers). Others are still grappling with their exposure in China and other transmission complexes. Given the relatively quick economic restart in China, many companies are focused on temporary stabilization measures rather than moving supply chains out of China. COVID-19 is also serving as an accelerant for companies to make strategic, longer-term changes to supply chains—changes that had often already been under consideration.

To better understand which scenario may prevail, planning teams can consider a set of leading indicators like those in the exhibit (see an updated version of the exhibit here).

About the author(s)

Matt Craven is a partner in McKinsey’s Silicon Valley office; Linda Liu is a partner in the New York office, where Matt Wilson is a senior partner; and Mihir Mysore is a partner in the Houston office.

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