By Christos Antonopoulos

With the landscape having shifted significantly for the 2020–2021 period, we will attempt to look deep into the crystal ball before us and decode the trends and developments at the global economic level for the current second half of the year, as well as for the upcoming 2021. It is certain, however, that some of the following trends are here to stay, and their presence will accompany us for a much longer period of time.

(Non-)Lack of Liquidity and the Updated ‘Whatever It Takes’

While there were initially fears that many businesses would be suffocated by a lack of liquidity due to declining sales, thanks to the financial tools available in the arsenals of central banks, the gap appears to be covered. With borrowing rates at historic lows and financing taps wide open, most businesses have immediate access to cash.

Fiscal policy appears to be, and is, a dynamic response to the existing problem, but the high levels of borrowing following the 2008–2012 crisis in the Eurozone may pose an obstacle for some countries in fully deploying all available financial instruments. The big question remains whether maintaining high leverage ratios alongside a decline in production and sales will lead to stagflation.

Asset Impairment

There is no doubt that most companies will see their assets (whether tangible or intangible) impaired, subject to both an accounting and a real-world impairment. A notable exception will be intangible assets related to software or other cutting-edge technologies.

Rise in Bankruptcy Filings and the Banking Response

In the best-case scenario, there will be no significant ‘closures’ in the market, but rather a series of small and medium-sized companies entering some form of lightweight insolvency proceedings and seeking creditor protection through a restructuring programme. This is likely to be accompanied by widespread debt forgiveness, which would cause turbulence in banks’ financial results.

In the negative yet realistic scenario, where there are many closures of small and medium-sized businesses as well as industry giants in tourism and transport, the banking sector will be severely tested during a period when it had seemingly cleaned up its books internally and was aiming higher. In this case, given the deterioration of bank balance sheets in a potential second wave of the virus, cheap liquidity may not be sufficient.

Regionalisation of Supply Chains

The surge of COVID-19 will serve as a wake-up call for many executives who will reconsider the resilience of the existing globalised supply system for a range of products such as cars, electronic devices, and medical equipment. The US–China trade war, the need for safety stocks close to points of sale, and the customary (but perhaps now less effective) large-scale production efficiencies that originally drove production to remote locations will all be reassessed.

The Explosion in Data and Information Transfer

The rapid increase in cross-border data flows is not a new trend. It has grown exponentially over the last 20 years compared to goods trade. Data is the oil of our era, the most important source of wealth if and when used correctly. For most companies, it is vital to know who bought a product or service, what they bought, why they bought it, and whether they are likely to buy again.

In the current environment, access to and use of data will be the axis around which growth in trade, innovation, and productivity revolves. Between 2005 and 2021, global internet traffic will have increased 127-fold. At the same time, the expansion of the 5G network will support the Internet of Things (IoT), such that by 2021, the number of devices connected to the internet will be three times the global population.

Digital Consumerism

Consumers will favour local, convenient, contactless solutions for their purchases, leading to the so-called ‘digital life’. A continuous increase in the volume of goods and services transacted through e-commerce is expected. People spent considerable time at home during lockdowns and became even more accustomed to online entertainment, information, and shopping. Simultaneously, the contraction of disposable income will lead consumers to make more cautious online purchases, which is expected to compress the prices of many consumer goods. The value-oriented consumer has returned, and is here to stay.

Conclusion

In conclusion, the global economy is entering a new phase, with many hardships but also with increased digitalisation in international trade. As happens at the start of every new economic cycle, the most adaptable, per Darwin, will survive and thrive. The digital transformation of many economic activities is no longer a choice but is becoming ‘mandatory’. Think globally, act locally, as we learn from management textbooks, and now the time has come to apply this principle extensively in practice.

* Christos Antonopoulos is a Certified Public Accountant with many years of experience in Greece and the USA.