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

McKinsey 23 Mar 2020 12:00

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Everything has changed. Just a few weeks ago, all of us were living our usual busy lives. Now, things normally taken for granted—an evening with friends, the daily commute, a plane flight home—are no longer possible. Daily reports of increasing infections and deaths across the world raise our anxiety and, in cases of personal loss, plunge us into grief. There is uncertainty about tomorrow; about the health and safety of our families, friends, and loved ones; and about our ability to live the lives we love.

In addition to the immediate concern about the very real impact on human lives, there is fear about the severe economic downturn that may result from a prolonged battle with the novel coronavirus. Businesses are being shuttered and people are losing their jobs. We think and hope there is a different option from the ones posed in a recent Wall Street Journal editorial that suggests that we may soon face a dilemma, a terrible choice to either severely damage our livelihoods through extended lockdowns, or to sacrifice the lives of thousands, if not millions, to a fast-spreading virus. We disagree. Nobody wants to have to make this choice and we need to do everything possible to find solutions.

To solve for both the virus and the economy, we need to establish behaviors that stem the spread of the virus, and work towards a situation in which most people can return to work, to family duties, and to social lives.

To date, the only proven way of containing the virus, once community transmission is widespread, is by enforcing significant lockdowns; disciplined physical distancing; testing; and contact tracing. China, Japan, Singapore and South Korea have shown that these measures can stop the virus from spreading and enable economic activity to resume, at least to some extent. Everyone is closely following the developments in Italy and many other nations to find out whether the control measures there are sufficient to slow the growth of new infections and fatalities. Our common goal must be to implement the best possible response to stop this crisis.

These and a million more questions are racing through our minds, adding stress to the already challenging reality of living in the time of the coronavirus.

In terms of Virus Spread and Public-Health Response, we currently see three “archetypes” of interventions and outcomes:

In terms of Knock-on Effects and Public-Policy Response, we anticipate three potential levels of effectiveness:

If we combine these three archetypes of viral spread and three degrees of effectiveness of economic policy, we see nine scenarios for the next year or more (Exhibit 2).

We believe that many currently expect one of the shaded scenarios, 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 scenarios will inevitably vary by country and region. But all four of these scenarios lead to V- or U-shaped recoveries.

Even in this optimistic scenario, however, all countries would experience sharp GDP declines in Q2, most of which would be unprecedented. Consumer spending in most advanced economies accounts for roughly two-thirds of the economy, and about half of that is consumer discretionary spending. Real-time data suggests that spending on durable goods including automobiles in areas affected by shutdowns could fall as much as 50 to 70 percent; spending on airline flights and transportation could fall by about 70 percent; and spending on services such as restaurants could decline in affected cities by 50 to 90 percent. Overall, as mentioned earlier, consumer discretionary spending could abruptly fall by as much as 50 percent in areas subject to shutdowns.

A darker picture of the future

The economic impact in these scenarios would be unprecedented for most people living today in advanced economies. Developing countries that have faced currency crises have some experience in events of this order of magnitude.

These protocols cannot be static. Today, lockdowns are often implemented uniformly for everybody, everywhere, regardless of specific infection risks. Imagine a world in which, based on a deep understanding of infectious risks, tailored sets of protocols with different levels of rigor could be implemented for every city, every quarter, and suburban neighborhood.

As Angela Merkel said last week in an appeal to Germany, and others have echoed, our ability to come through this crisis will primarily depend on the behavior of each of us. The initial and immediate lockdowns are necessary to break the spread of the virus and safe lives. We believe that with the right protocols in place, and people following these protocols, the lockdown constraints can be gradually released sooner rather than later.

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EuropeUnited StatesChinaKevin SneaderShubham Singhal
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