The nightmare is not over. Economic uncertainty persists worldwide. As leaders of organizations enter the planning season for 2021, they need to think beyond next year to make an orderly exit from the COVID-19 crisis that sets them up for ongoing success. During a McKinsey Live webinar, senior partners Hortense de la Boutetière and Martin Hirt explained the current global economic conditions, the trends emerging from the crisis, and what they mean for companies charting their paths to the future.
Where we are now
True economic recovery can begin only when uncertainty ends—and executives’ confidence is beginning to increase. Although infection rates are still rising, testing is up and mortality rates have stabilized. Knowledge about virus control and treatment is growing, and vaccines are in development. Across the global economy, recovery has been underway for months, with a GDP upturn in the third quarter of 2020, when it was 5 percent above the second-quarter GDP. Executives, on average, believe that global GDP could increase by 4 to 7 percent in 2021 and that a full return to 2019 GDP levels is possible by 2022.
The pandemic has accelerated many major trends that were shaping economies before COVID-19, including shifts in global growth, accelerated industry disruption, and a rising need for societal cooperation. The gap between the best- and worst-performing companies, already growing before the pandemic, has widened.
Even though today’s crisis resulted from a humanitarian and healthcare emergency and the 2008–09 recession was financially driven, the earlier downturn holds lessons for companies striving not only to recover but to join the ranks of the best. During the 2008–09 recession, the most resilient and successful companies reacted faster and were bolder and more flexible than their less resilient counterparts. As a result, they grew 30 percent faster and made three times higher cost reductions, 1.5 times more divestments, and 1.2 times more acquisitions. They also understood the importance of advanced technology and the need for a resilient leadership team able to make big, strategic decisions quickly.
Planning for 2021
The paths of different countries and industries will vary, but leaders need to extend their gaze beyond 2021 to a full recovery from COVID-19 in 2022. Doing so includes taking the following steps:
- Include a positive scenario in the range of potential scenarios when planning for 2021. Look to China, whose GDP is back to a precrisis level, as an example.
- Anchor your 2022 plans in your company’s 2019—not 2020 and 2021—trajectory. Less difficult to predict than 2021, 2022 will probably be a better baseline for corporate planning.
- Launch company initiatives now. Make 2021 a year of cleanup and transition to a COVID-19 exit and greater predictability in 2022. Execute a digital transformation and growth initiatives. Assess the potential of the business, transform the company’s portfolio, and reallocate resources.
Companies that have done well during the current crisis can turn their advantage into strong positions for years to come. Struggling companies can use the COVID-19 era as an opportunity to transform their businesses and join the winners.
For more on this topic, please watch the webinar recording and read the article “Can you lead toward a COVID-Exit?”