Sectoral Impact, Measure & Recovery

The COVID-19 pandemic has had a profound impact on the global economy and many industries have been affected during the last two years. Some of the sectors thrived whilst many were hit hard. The sectors being hit hardest during the pandemic include:

• Hospitality and Tourism – The worldwide lockdowns and travel restrictions have taken a toll on the travel and tourism industry with many hotels and other tourist-related businesses forced to close down or reduce in size.
• Airlines – Likewise, the aviation industry has been hit hard as well with many airlines cutting routes and grounding planes.
• Retail & F&B Outlets – Brick-and-mortar retail stores faced a drastic decline in footfall and in-store sales. Restaurants and other food service businesses faced similar challenges with lockdowns and social distancing measures.
• Entertainment – The entertainment industry including cinemas, concerts, theatres and sporting events, was also heavily impacted and was forced to postpone or cancel their shows and events during the pandemic.
• Manufacturing – Some manufacturing industries such as automotive and electronics have been affected by disruptions in supply chains due to movement restriction and decreased demand.

Nevertheless, it is important to note that the impact of the pandemic was not universal across all industries. Some sectors may have been less affected than others. For example, the essential goods and services sector, such as food production and distribution, healthcare, logistics, e-commerce and IT-related businesses have seen little change in demand. These sectors are more resilient and some have even seen growth and thrived during the pandemic.

The Measures

The shock of the pandemic has pushed businesses across industries to apply newer and bolder ways of doing business. The sudden pandemic-induced revenue shortfalls had made business owners rethink their product, business and operation models to become more responsive to changes. Companies had accelerated their adoption and deployment of technologies i.e. digitisation, robotics, Artificial Intelligence and Machine Learning, that had been around for some time, and with the right conditions in place, these technologies could replace human workforce and raise labour productivity.

A broad shift toward online interaction channels also occurred during 2020. A McKinsey Global Institute (2020a) survey conducted in October 2020 found that companies digitised many activities 20-25 times faster than they had previously even thought possible and another survey on retail (McKinsey Global Institute, 2020b), sales from e-commerce rose from 16% to 33% in total retail sales during the first two months of Covid-19 crisis. One of the retailers even achieved 3 years’ worth of pre-pandemic rates of growth in e-commerce in just eight weeks.

A study from Google Community Mobility Reports and Mastercard Economics Institute has also supported the fact that online spending peaked at the beginning of the crisis in the second quarter of 2020 when lockdowns severely curbed movement in most economies. However, as the pandemic continued, that correlation between restrictions and online spending weakened—consistent with the declining impact of lockdowns and other restrictions on economic activity over time.

The change in post pandemic is here to stay. With these structural changes bringing positive effects on businesses, reverting to previous pre-pandemic ways is no longer plausible. 

The Recovery

The speed of recovery from the pandemic can vary greatly among different sectors and the rate is influenced by many factors such as the severity of the pandemic’s impact on the sector, the sector’s ability to adapt to the changing circumstances and support from the government. Some industries that rely heavily on face-to-face interaction will take years to get back to their pre-pandemic normal while the recovery for those SMEs in affected sectors may take even longer.

McKinsey Global Institute and Oxford Economics have modelled the rate of recovery that could take five years or longer across all businesses under two scenarios i.e. virus-contained scenario and muted-recovery scenario. Muted recovery refers to an economic recovery that is slower and less robust than it would have been without the resurgence of the virus. Among small businesses, recovery is again likely to take even longer.

In general, sectors that have been able to shift to remote or online operations have been less affected and have seen a quicker recovery. These sectors include technology, e-commerce, and digital services. The healthcare sector has also been relatively resilient, due to increased demand for medical services and supplies.

It’s worth noting that the recovery process can also be uneven across regions, as the impact of the pandemic and the speed of recovery can vary widely depending on local conditions. Likewise, the impact can vary greatly within a sector too depending on the specific industry and its level of exposure to the crisis. While some companies within a sector may have been able to continue operating relatively unchanged, others may have suffered significant disruptions and losses.