Navigating the New Reality

Macro overview and recommendations for European business leaders to build resilience in a post-pandemic world

  • K-shaped developments

    within certain economies or sectors

  • -9,1% European GDP

    contract rate in 2020

  • Fiscal consolidation

    expected for European governments

Executive summary

Since the World Health Organization declared the novel coronavirus a global pandemic in March, nearly everything has changed – affecting both the way people live and how they work. As a result, the pandemic has caused many countries to establish restrictions on citizens, ranging from curfews to quarantines. Back in January, the IMF expected the global economy to grow by 3.3 percent, but more recent estimates have suggested it will contract by close to 5 percent this year. And now, efforts to control the second wave of infection in Europe are likely to further worsen economic outlooks.

Against this backdrop, most analyses suggest a U-shaped recovery across the European Union, with growth returning in 2021, but GDP still ranging below 2019 levels at the end of 2022. However, in light of the current reacceleration of COVID-19 infections across most of Europe, more and more economists and corporate leaders expect to see a somewhat slower recovery for 2021 and 2022, or even longer-lasting recessions in some European countries. In light of these differences, we expect a K-shaped recovery, with economies and sectors split between those that return to growth fast and others that endure a more protracted downturn.

As they plan ahead, it will be critical for business leaders in Europe to consider how their companies need to repair, rethink and reconfigure their operations. The ultimate goal must be to emerge stronger from this crisis, in turn becoming a more resilient organization that will be better prepared for future shocks.

Dr. Peter Gassmann

“COVID-19 has challenged the resilience of the European economy on an unprecedented scale. It seems that European industries are more vulnerable to the pandemic than those in other regions. We need to build on the openness to innovation and digital transformation we have witnessed this year, and reimagine existing business models to make them more resilient.”

Dr. Peter Gassmann, Managing Director Strategy& Europe and Global ESG Leader of PwC

The current situation in Europe

As the global pandemic persists and accelerates, there has been overwhelming consensus on downward revisions of economic forecasts. However, there is divergence between the specific forecasts for different regions and sectors.

For leaders, this K-shaped recovery poses many dilemmas to navigate and contradictions to reconcile. In order to provide senior executives with one integrated picture summarizing the economic outlook, this report is based on analyses and insights from more than 180 research institutes and other academic organizations.

Based on the latest data from October 2020, we expect GDP across the EU to shrink by around 9.1 percent in 2020, but to recover in 2021 and 2022, with growth rates of 5.5 percent and 1.2 percent respectively. However, gaps are widening between countries. In Germany, we expect GDP to shrink by 7.0 percent in 2020, whereas the outlook for some other European countries continues to worsen.

How to build resilience: repair, rethink, reconfigure

The macroeconomic picture presented in our study shows the extent of the hardship and uncertainty European countries and businesses will face in the near future. With no comprehensive treatment or vaccine for Covid-19 available yet, rising numbers of infections and further government restrictions will remain a threat. As a result, all organizations will need to continue to strictly manage costs and protect cash flow.

In the face of such disruption, companies may well feel they have to focus exclusively on keeping their operations going in the here and now. Undoubtedly, some will be irreparably damaged, both by the pandemic and because their business model was already losing relevance. However, most have a critical opportunity to start rethinking and reconfiguring future plans in order to build their resilience and adaptability, and emerge stronger from the current crisis. Business leaders must focus on these three strategic goals:

Repair
Ensure viability and rebuild strength

Rethink
Envision the future in order to manage today

Reconfigure
Dramatically redesign future operations

Methodology

The Strategy& COVID-19 economic scenarios are based on a consensus of analyses that incorporates more than 180 sources and predictions (including from global research institutes, universities, investment banks, national governmental and supranational bodies, and ratings agencies), as well as financial data on 40 million corporations globally from 35 countries and 16 industries. Estimates according to the V-, U- and L-shaped scenarios on a country and industry level lead to a K-shaped pattern as certain economies and sectors diverge. The scenarios have been updated monthly since March 2020.

The authors would like to thank Dr. Benedikt Bruognolo, Marius Klee, Jens-Peter Nees and Stephan Plietsch for their advice and contributions to the analyses.

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Contact us

Dr. Peter Gassmann

Dr. Peter Gassmann

Managing Director Europe, Strategy& Germany

Dr. Philipp Wackerbeck

Dr. Philipp Wackerbeck

Partner, Strategy& Germany

Thorben Wegner

Thorben Wegner

Manager, Strategy& Germany

Dr. Klaus-Peter Gushurst

Dr. Klaus-Peter Gushurst

Partner, PwC Germany

Dr. Joachim Englert

Dr. Joachim Englert

Partner, PwC Germany

Mark Smith

Mark Smith

Partner, PwC Germany

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