The coronavirus crisis is an unprecedented disaster for humanity, an external shock to the global economy the likes of which we have never seen before. If somebody had told us, around the turn of the year, that the global economy would be shut down in order to contain the spread of a virus that had originated in an animal market in central China and that it would cause the most severe recession since the 1940s, we would most likely have shaken our heads in disbelief. Generally, we think that the coronavirus crisis is accelerating existing structural trends rather than creating new ones. We have taken a more detailed look at economics, politics, globalisation, society, inequality, healthcare, digitalisation and investing, to examine how the COVID-19 pandemic will affect these areas.
The global economy was caught totally off-guard. Confronting the spread of COVID-19 has created the need for massive stimulus measures and has led to substantial financial costs via lost revenues and labour income. Dealing with these costs will shape the economy in the years to come. The public sector is currently absorbing a large proportion of these costs, as much as countries’ public budgets will allow. Dealing with the legacy of substantially expanded public debt will shape national economic landscapes significantly, once a recovery of economic activity to pre-crisis levels materialises.
The coronavirus crisis is likely to lead to a more polarised world as authoritarian leaderships tighten the grip on their countries. That said, our observations show that successful crisis management is not about an authoritarian or libertarian approach. It seems instead that social cohesion and trust in the institutions are key. Geopolitically, the virus and the search for the guilty party is set to become the next battlefield, where the two hegemons, the United States and China, will wage their power struggle. The multi-polar world will thrive as we enter the next decade, and will remain a source of surprise and market volatility.
Globalisation will come under scrutiny, as self-sufficiency and reshoring are likely to make their way back onto the political agenda. Companies will need to reassess their supply chains, which is likely to lead to higher costs, as well as higher prices. For some companies, the reshoring of production might be the optimal response to a higher risk of supply chain disruptions and they might benefit from technologies such as automation and robotics. For all companies, greater robustness means diversifying production geographically rather than concentrating it on one location only, relying on a broader range of suppliers or holding larger inventories.
Socially, our lives will not change a lot. We will still enjoy ourselves, be back in bars, cafés and restaurants. Social contact is important for our health and our well-being. Working from home will be more common, but it will not become the new normal as it blurs the boundaries between private life and working life. Consequently, some rather than many offices will be orphaned, and the cities will bounce back, as they have done after every crisis. Across societies, the coronavirus crisis not only highlights but also aggravates inequality in an unprecedented manner. That said, the crisis also offers an opportunity to address it, in order to reshape societies, increasing cohesion and resilience. Reducing inequality is a starting point and not the ultimate goal.
The pandemic has exposed appalling deficiencies in our healthcare systems. It should serve as a wake-up call to further foster the long-term transformation of healthcare, rendering it more resilient and more efficient for humankind. The extent of the outbreak will hasten the further digital transformation of healthcare to improve patient care due to the rising demand for faster adoption of digital health technologies, which should free up capacities at clinics and hospitals. Further advances in the field of genomics will not only help us understand COVID-19 but likewise pave the way for tailor-made treatments for many other diseases.
While the general trend towards digitalisation was already well-established before COVID-19, the crisis has accelerated the speed at which it is occurring. Providers of digital solutions in the areas of entertainment and payments should continue to benefit from this trend. For many companies, the coronavirus crisis means that the longer-term threat of not being digital is becoming much more short-term. A proper online presence is more important than ever. An even more digitalised world and a world where we create more and more data does not only bring opportunities. It also comes with a rising risk of cyberattacks, privately, professionally and politically.
The coronavirus crisis caused considerable turmoil in the financial markets. At the height of the crisis, sustainable investing went through its baptism of fire, outperforming the broader market. Companies with a clear focus on sustainability often exhibit a more resilient business model or operate in areas, which have been less affected by the short-term turmoil. The crisis is surely a trigger for those investors interested in environmental, social and governmental (ESG) aspects of their asset selection but who have yet to implement these aspects in their decision-making. For those already invested, on the other hand, the crisis provided proof and served as an opportunity to become more deeply involved, while the investment segment is maturing and more options are becoming available.
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Even during these unprecedented times, Julius Baer posted record results for the first half of 2020, with profits surging by 43% to $523 million. “Julius Baer has achieved outstanding results thanks to three factors,” explains Albert Henriques, CEO Bank Julius Baer Monaco. “Our exclusive focus on wealth management, which keeps us from losing our client focus; our highly resilient organisation, agile and nimble in difficult times with reliable infrastructure and excellent risk management; and our very strong business performance in all dimensions, including our ability to take advantage of market volatility.”
Julius Baer Group is present in over 20 countries. Monaco, where it enjoys a market-leading position, is one of the key locations. As Henriques highlights, “The Principality is an exceptional country in terms of diversity, geography, quality and stability of its institutions and government structure. The size of the country and its significant concentration of ultra-high-net-worth Individuals make Monaco a core market for Julius Baer. We are very proud to see our local office expand and become one of the top three banks in the region.”
By Carsten Menke, Head of Next Generation Research at Bank Julius Baer & Co. Ltd.
