The Economic Impact of COVID-19, According to Business Leaders

The Economic Impact of COVID-19: Positives and Negatives

By Carmen Ang-December 29, 2020

The global pandemic has disrupted business activities worldwide. But COVID-19’s economic impact has varied across regions, and the consequences have been largely dependent on a region’s economic position.

Using survey data from the World Economic Forum’s 20th Global Competitiveness Report, this graphic showcases the economic impact of COVID-19 worldwide. This year’s survey was conducted between February and July 2020 and includes responses from 11,866 business executives across 126 economies.

As you’ll see, the data was collected with the specific focus of contrasting the pandemic’s effects on developing economies compared to advanced economies.

Top Negative Impacts of COVID-19

By comparing business leaders’ responses in 2020 to their answers over the last three years, some clear trends have emerged.

In advanced economies, the top negative economic impact of COVID-19 has been a decline in competition, followed by reduced collaboration between companies and a growing challenge in finding and hiring skilled workers:

Rank	Factor	% Change (2020 vs. 3-Yr Avg)
1	Competition in network services	-2.9%
2	Collaboration between companies	-2.6%
3	Competition in professional services	-2.3%
4	Competition in retail services	-1.8%
5	Ease of finding skilled employees	-1.5%

What’s driving this reduced competition in advanced economies?

One factor could be the increased use of online platforms. Ecommerce is heavily dominated by a select number of retailers. Because of this, bigger retailers like Amazon have seen massive boosts in their online sales, while many smaller brick-and-mortar businesses have been struggling.

While negative impacts on advanced economies are centered around market concentration and talent gaps, developing countries have faced different problems this year, like increased crime and governance issues:

Rank	Factor	% Change (2020 vs. 3-Yr Avg)
1	Business costs of crime and violence	-2.5%
2	Judicial independence	-2.4%
3	Organized crime	-1.2%
4	Extent of market dominance	-0.6%
5	Public trust of politicians	-0.4%

It’s important to note that in the 2018 and 2019 surveys, organized crime and business costs related to crime and violence were trending downward. Because of this, the World Economic Forum suggests that we consider this year’s increase in these areas as as a temporary COVID-induced setback rather than a long-term issue.

Top Positive Impacts of COVID-19

Despite the struggles brought on by COVID-19, the pandemic has also triggered positive change. In fact, business leaders perceived more positive developments this year than negative ones.

In advanced economies, the top positive impacts were government responsiveness to change, followed by internal collaboration within companies:

Rank	Factor	% Change (2020 vs. 3-Yr Avg)
1	Government's responsiveness to change	8.2%
2	Collaboration within a company	4.6%
3	Venture capital availability	4.4%
4	Social safety net protection	4.2%
5	Soundness of banks	4.0%

 

Interestingly, internal collaboration improved while external collaboration got worse. This is likely because companies had to adapt to changing work environments, while also learning how to collaborate with one another through remote working.

Internal collaboration didn’t just improve in advanced economies. In fact, developing economies experienced several of the top positive impacts that advanced economies saw as well:

Rank	Factor	% Change (2020 vs. 3-Yr Avg)
1	Collaboration within a company	6.9%
2	Government's responsiveness to change	6.8%
3	Efficiency of train transport services	5.9%
4	Venture capital availability	5.9%
5	Country capacity to attract talent	5.8%

While perceptions on official responsiveness to change increased, public trust in politicians decreased slightly. This indicates that, while government responses to COVID-19 may have been received well in developing economies, overall feelings towards political leaders did not waiver.

How Have Countries Stayed Strong During the Pandemic?

While the impacts of COVID-19 varied between advanced and developing economies, business leaders across the board identified some common features that helped countries remain resilient:

1. Economic digitization and digital skills
   Social distancing has been a key response to the pandemic. Because of this, countries that were set up for remote work have fared better than others. Netherlands, New Zealand, and Finland are a few examples.
2. Safety nets and financial soundness
   Countries with established support systems for companies and citizens were in a better position to keep their economies afloat. Denmark and Norway provided much-needed support to their households, while Taiwan and the U.S. were able to aid businesses thanks to strong financial systems.
3. Governance and planning
   Balancing health priorities with economic and fiscal policies was a delicate dance this year. Countries that provided relatively stable political frameworks were Singapore, Luxembourg, Austria, and the United Arab Emirates.
4. Healthcare system and R&D
   A strong healthcare system meant widespread access to health services needed during the pandemic, as well as established public health protocols. Japan, Spain, and Taiwan were good examples of this.

Will these key features of competitiveness remain effective measures of a strong economy in 2021, or will our benchmarks for success evolve post-pandemic?