What if inflation is not transitory? – The Global Economy: on Track for Strong but uneven Growth as COVID-19 still Weighs – What’s next for consumers, workers, and companies in the post-COVID-19 recovery

Today’s TextileFuture Newsletter will answer your question “What if inflation is not transitory?“, will it damage my fortune, will it endure for quite some time and how one has to interprete the policy of central banks who continue to have light hand on money printing. The base is an article of the investment committee of Bank JSafraSarasin.

The second feature is based upon the estimates of the World Bank on the latest stature of the “Global Economy“, a short briefing, with a possibility to downlod the full version of the report.

The last, but not least feature is based upon research work on “What’s next for consumers, workers, and companies in the post-COVID-19 recovery” by McKinsey consulting group. Also here you can download the report at full length.

We find all of them worthwhile to study in-depth, in order to draw the best conclulsions.

Here starts the first item

What if inflation is not transitory?

Inflation remains the dominant theme in financial markets. Emerging price pressure can already be observed in many segments. But is this sustainable?

Philipp E. Bärtschi, CFA, Chief Investment Office of Bank J. Safra Sarasin

Inflation remains the dominant theme in financial markets. Emerging price pressure can already be observed in many segments. But is this sustainable?Macro outlook –Inflation about to make a comeback? Inflation  data  have  risen  more  strongly  than  expected  in  recent weeks.  Not  only in the  US,  but  also in  the  euro  zone, the  year-on-year inflation rate of 2 % recently exceeded market participants’ ex-pectations.  As  in  previous  months,  the  strongest  contribution came from rising energy prices. At the same time, the surveys also add  to  the  evidence  that  near-term  price  pressures  are  intensify-ing.Delivery  times lengthened  at  a  record  pace  consistent  with widespread reports of input shortages. Companies metthe strong demand by running downtheir inventories. Input and output prices also rose at a record pacein this environment. Against this back-ground, the risk of sharply rising inflation rates appears increased. However,  this  has  not  weighed  on  consumer confidence – especially not in the Euro Zone, where it has already overtaken the US. The latest easing measures are therefore having a positive effect.A similar picture is painted by the European purchasing managers’ indices,  which,  following  already  strong  April  figures,  continued their positive momentum in May and again exceeded expectations. Against the backdrop of a gradual re-opening of the economy, the services component rose to 55.2 points, a three-year high. The purchasing managers’ index for the manufacturing sector climbed to 63.1 points –the highest value since the start of the data series.Although  there  is  still  some  catching  up  to  do  in  some  regions  of the world, first signs of growth fatigue are already becoming appar-ent, for example in the form of a slowdown in the positive momentum of new orders.

Macro outlook –Inflation about to make a comeback?

Inflation  data  have  risen  more  strongly  than  expected  in  recent weeks.  Not  only in the  US,  but  also in  the  euro  zone, the  year-on-year inflation rate of 2% recently exceeded market participants’ ex-pectations.  As  in  previous  months,  the  strongest  contribution came from rising energy prices. At the same time, the surveys also add  to  the  evidence  that  near-term  price  pressures  are  intensify-ing.Delivery  times lengthened  at  a  record  pace  consistent  with widespread reports of input shortages. Companies metthe strong demand by running downtheir inventories. Input and output prices also rose at a record pacein this environment. Against this back-ground, the risk of sharply rising inflation rates appears increased. However,  this  has  not  weighed  on  consumer confidence–espe-cially not in the euro zone, where it has already overtaken the US. The latest easing measures are therefore having a positive effect.

A similar picture is painted by the European purchasing managers’ indices,  which,  following  already  strong  April  figures,  continued their positive momentum in May and again exceeded expectations. Against the backdrop of a gradual re-opening of the economy, the services component rose to 55.2 points, a three-year high. The pur-chasing managers’ index for the manufacturing sector climbed to 63.1 points –the highest value since the start of the data series.Although  there  is  still  some  catching  up  to  do  in  some  regions  of the world, first signs of growth fatigue are already becoming appar-ent, for example in the form of a slowdown in the positive momen-tum of new orders.

Yields trapped in narrow range

Global central banks persistently point to transitory effects as be-ing responsible for the sharp rise in inflation rates. Of course, base and one-off effects (e.g., an oil price rally that should not last and pandemic-related supply chain disruptions) are easy to argue with. But concerns about a permanent rise in inflation are nevertheless not unfounded. Central banks are willing to keep the economy run-ning  hot,  and  further  fiscal  policy  measures  are  on  the  way.  It  is true  that  the  consistent  communication policy  of  the  US  Federal Reserve  has  so  far  managed  to  prevent  a  sustained  rise  in  yields in the US government bond markets –ten-year US Treasuries are still  trading  below  1.6%.  However,  an  unchanged  positive  eco-nomic  environment,  further  fiscal  measures and  increasing  infla-tionary pressure are unlikely to leave the bond markets unscathed and free government bond yields from their lethargy.

Global central banks persistently point to transitory effects as be-ing responsible for the sharp rise in inflation rates. Of course, base and one-off effects (e.g., an oil price rally that should not last and pandemic-related supply chain disruptions) are easy to argue with. But concerns about a permanent rise in inflation are nevertheless not unfounded. Central banks are willing to keep the economy run-ning  hot,  and  further  fiscal  policy  measures  are  on  the  way.  It  is true  that  the  consistent  communication policy  of  the  US  Federal Reserve  has  so  far  managed  to  prevent  a  sustained  rise  in  yields in the US government bond markets –ten-year US Treasuries are still  trading  below  1.6%.  However,  an  unchanged  positive  eco-nomic  environment,  further  fiscal  measures and  increasing  infla-tionary pressure are unlikely to leave the bond markets unscathed and free government bond yields from their lethargy.

Equities –Improving environment for emerging market

The main concern for equity markets is that higher than expected inflation could lead to an earlier tightening of global monetary pol-icy  and  rising  yields.  Financial  markets  are  therefore  still  looking for direction, and investors have recently responded to this uncer-tainty with a focus on quality as well as value and dividend stocks. In  terms  of  regions,  according  to  the  latest  Bank  of  America  fund manager survey, investors are most overweight in European equi-ties, as this is where the greatest catch-up potential exists, and not only on an economic level. This is also reflected in the more stable price  behavior  in  recent  weeks.  What  most  regions  have  in  com-mon  is  the weakerperformance  of  growth stocks,  not  only due  to rising interest rates, but also due tostronger earnings performance of cyclical sectors. And the European stock market in particular has benefited from this recently.

Meanwhile,  after  a  weak  start  to  the  year,  the  environment  for emerging market equities is also improving, largely due to the sta-bilization of Chinese credit growth. The PBoC had focused on Chi-na’s  debt  problems  in  recent  months  and  provided  only  limited stimulus –credit  growth  was  strongly  negative.  The  declining credit  impulse  weighed  heavily  on the  emerging  market  equity complex, but a bottom seems to have formed recently.Asset Allocation –Slight overweight in equitiesWe are currently in a transition process from the strong recovery in the aftermath of the COVID 19 recession to a sustained expansion characterized by alsopositive but less strong growth rates. These transitions, which vary from region to region, are characterized by increased  uncertainty.  Temporary  setbacks  are  possible  at  any time, but overall risk assets remain well supported. Sentiment in-dicators and macro data are at high levels, companies are ready to invest, consumers are ready to consume, and liquidity is not likely to be withdrawn from the market any time soon. However, much is already priced into current market levels, so upside potential is lim-ited.  We  prefer  European  equity  markets,  which  should  benefit more from the continued reflation of the economy, not least due to attractive  valuations.  In  emerging  market  equities,  we  still  see catch-up  potential  due  to  the  bottoming  out  in  China  and  are  in-creasing  our  allocation  to  an  overweight.  Overall,  we  are  now slightly overweight equities.We  are  keeping  our  underweight  in  government  and  investment grade bonds. We expect interest rates to rise slightly due to rising inflation  rates  in  the  context  of a  continued  economic  recovery, which  is  likely  to  weigh  particularly  on  investment  grade  bonds, whose credit spreads have tightenedsharply in recent months and offer  an unfavourablerisk-return  profile.  Uncertainty  regarding  a change  in  the  monetary  policy  path  of  global  central  banks  or  the start of a corresponding change in communication in late summer is  leading  to  latent  uncertainty  in  the  bond  market.  Against  this backdrop,  we  prefer  carry  instruments  such  as  high-yield  bonds and  emerging  market  bonds,  which  offer  a  more  attractive returnbehaviour, especially in an environment of above-average and ris-ing inflation rates. We remain overweight in both segments.

www.jsafrasarasin.com

The Global Economy: on Track for Strong but Uneven Growth as COVID-19 Still Weighs

A year and a half since the onset of the COVID-19 pandemic, the global economy is poised to stage its most robust post-recession recovery in 80 years in 2021. But the rebound is expected to be uneven across countries, as major economies look set to register strong growth even as many developing economies lag.

Global growth is expected to accelerate to 5.6% this year, largely on the strength in major economies such as the United States and China. And while growth for almost every region of the world has been revised upward for 2021, many continue to grapple with COVID-19 and what is likely to be its long shadow. Despite this year’s pickup, the level of global GDP in 2021 is expected to be 3.2% below pre-pandemic projections, and per capita GDP among many emerging market and developing economies is anticipated to remain below pre-COVID-19 peaks for an extended period. As the pandemic continues to flare, it will shape the path of global economic activity.

The United States and China are each expected to contribute about one quarter of global growth in 2021. The U.S. economy has been bolstered by massive fiscal support, vaccination is expected to become widespread by mid-2021, and growth is expected to reach 6.8% this year, the fastest pace since 1984. China’s economy – which did not contract last year – is expected to grow a solid 8.5% and moderate as the country’s focus shifts to reducing financial stability risks.

Lasting Legacies

Growth among emerging market and developing economies is expected to accelerate to 6% this year, helped by increased external demand and higher commodity prices. However, the recovery of many countries is constrained by resurgences of COVID-19, uneven vaccination, and a partial withdrawal of government economic support measures. Excluding China, growth is anticipated to unfold at a more modest 4.4 % pace. In the longer term, the outlook for emerging market and developing economies will likely be dampened by the lasting legacies of the pandemic – erosion of skills from lost work and schooling; a sharp drop in investment; higher debt burdens; and greater financial vulnerabilities. Growth among this group of economies is forecast to moderate to 4.7 % in 2022 as governments gradually withdraw policy support.

Among low-income economies, where vaccination has lagged, growth has been revised lower to 2.9 %. Setting aside the contraction last year, this would be the slowest pace of expansion in two decades. The group’s output level in 2022 is projected to be 4.9 % lower than pre-pandemic projections. Fragile and conflict-affected low-income economies have been the hardest hit by the pandemic, and per capita income gains have been set back by at least a decade. 

Regionally, the recovery is expected to be strongest in East Asia and the Pacific, largely due to the strength of China’s recovery. In South Asia, recovery has been hampered by serious renewed outbreaks of the virus in India and Nepal. The Middle East and North Africa and Latin America and the Caribbean are expected to post growth too shallow to offset the contraction of 2020. Sub-Saharan Africa’s recovery, while helped by spillovers from the global recovery, is expected to remain fragile given the slow pace of vaccination and delays to major investments in infrastructure and the extractives sector.  

Uncertain Outlook

The June forecast assumes that advanced economies will achieve widespread vaccination of their populations and effectively contain the pandemic by the end of the year. Major emerging market and developing economies are anticipated to substantially reduce new cases. However, the outlook is subject to considerable uncertainty. A more persistent pandemic, a wave of corporate bankruptcies, financial stress, or even social unrest could derail the recovery. At the same time, more rapid success in stamping out COVID-19 and greater spillovers from advanced economy growth could generate more vigorous global growth.

Even so, the pandemic is expected to have caused serious setbacks to development gains. Although per capita income growth is projected to be 4.9% among emerging market and developing economies this year, it is forecast to be essentially flat in low-income countries. Per capita income lost in 2020 will not be fully recouped by 2022 in about two-thirds of emerging market and developing economies, including three-quarters of fragile and conflict-affected low-income countries. By the end of this year, about 100 million people are expected to have fallen back into extreme poverty. These adverse impacts have been felt hardest by the most vulnerable groups – women, children, and unskilled and informal workers.

Global inflation, which has increased along with the economic recovery, is anticipated to continue to rise over the rest of the year; however, it is expected to remain within the target range for most countries. In those emerging market and developing economies in which inflation rises above target, this trend may not warrant a monetary policy response provided it is temporary and inflation expectations remain well-anchored.

Climbing Food Costs

Rising food prices and accelerating aggregate inflation may compound rising food insecurity in low-income countries. Policymakers should ensure that rising inflation rates do not lead to a de-anchoring of inflation expectations and resist using subsidies or price controls to reduce the burden of rising food prices, as these risk adding to high debt and creating further upward pressure on global agricultural prices.

A recovery in global trade after the recession last year offers an opportunity for emerging market and developing economies to bolster economic growth. Trade costs are on average one-half higher among emerging market and developing economies than advanced economies and lowering them could boost trade and stimulate investment and growth.

With relief from the pandemic tantalizingly close in many places but far from reach in others, policy actions will be critical. Securing equitable vaccine distribution will be essential to ending the pandemic. Far-reaching debt relief will be important to many low-income countries. Policymakers will need to nurture the economic recovery with fiscal and monetary measures while keeping a close eye on safeguarding financial stability. Policies should take the long view, reinvigorating human capital, expanding access to digital connectivity, and investing in green infrastructure to bolster growth along a green, resilient, and inclusive path.  

It will take global coordination to end the pandemic through widespread vaccination and careful macroeconomic stewardship to avoid crises until we get there.  

www.worldbank.org/en/

What’s next for consumers, workers, and companies in the post-COVID-19 recovery

By Susan Lund, Anu Madgavkar, Jan Mischke, and Jaana Remes from McKinsey. Susan Lund, Anu Madgavkar, Jan Mischke, Jaana Remes are McKinsey Global Institute partners based in Washington, New Jersey, Zurich, and San Francisco, respectively.

The authors wish to thank James Manyika, Sven Smit, and Jonathan Woetzel for their contributions to this article. MGI senior editor Stephanie Strom edited it.

Many changes in business models and consumer behaviour during the pandemic will stick, but action will be needed to ensure the rebound is not uneven.

COVID-19 changed how we live and work in ways that will alter our behaviour long after the pandemic subsides. Companies moved rapidly to deploy digital and automation technologies, dramatically accelerating trends that were unfolding at a much slower pace before the crisis. Work went remote, shopping, entertainment, and even medicine went online, and businesses everywhere scrambled to deploy digital systems to accommodate the shifts.

These changes in consumer behaviour and business models will persist in advanced economies after the pandemic recedes, although perhaps not with the same intensity as during the crisis. They promise big benefits in terms of higher productivity, efficiency, and innovation—but also could lead to an uneven economic recovery, with rising inequality among workers, contrasting outcomes for consumers depending on their age and income levels, and a growing gulf between outperforming companies and the rest—unless business leaders and policy makers take action to mitigate these unwanted effects.

Here we draw on insights from three recent McKinsey Global Institute reports to offer a perspective on how the pandemic may reshape the future of work, consumer behaviour, and productivity and growth over the next several years. The research focuses primarily on changes we have observed in advanced economies in Europe and North America. In Asia, where countries controlled COVID-19 more rapidly and effectively, the behavioural changes are less pronounced.

The actions we collectively take today—from investing in human capital to enabling a surge of entrepreneurship to diffusing technology to companies of all sizes—could create a virtuous cycle of job growth, rising consumption, and productivity growth. Lessons from past recessions reveal that this is not only possible but routinely occurred in many post-war recessions. Failure to act is likely to deliver a tepid, two-speed recovery like we saw after the 2008 financial crisis.

Every activity and function that could move online did, fuelling a mass digital migration. Companies sent their employees home and eliminated business travel, and many now plan to continue with some hybrid form of remote work and virtual meetings. Consumers went online to fulfil needs ranging from buying groceries and taking school classes to exercise and doctor appointments. Businesses also turned to digital tools in new ways. Auto dealerships used email, text messaging, Zoom, and Facetime to sell cars without any contact with customers, for example. Fast-food restaurants created “ghost” kitchens devoted solely to filling online delivery orders. Companies turned to automation and AI to cope with surges in demand and the need to reduce workplace density. Some of these changes delivered more convenience and greater efficiency and so are likely to endure well after the pandemic has receded.

Consumers shifted to digital channels

Retail got a jolt. E-commerce surged during the pandemic, increasing its share of total retail sales by two to five times its pre-pandemic rate across eight countries representing 45 percent of the world’s population and more than 60 % of global GDP—China, France, Germany, India, Japan, Spain, the United Kingdom, and the United States.

Many of the consumers driving that growth were new to online transactions. We found, for instance, that first-time online grocery shoppers accounted for 30 to 50 percent of total US consumers shopping online in July 2020, driven largely by baby boomers nudged by the pandemic to make a digital transition they otherwise might not have needed to make. “Home nesting” became popular, with many consumers investing to enhance their new homebound lifestyle (see sidebar, “Consumers focus on “home nesting”). Other virtual transactions took off, too. Telemedicine, for example, languished until COVID-19 came along. Online medical consultations via Practo, an Indian telehealth company, grew more than tenfold between April 2020 and November 2020. In France, the state health system reported 1.2 million virtual consultations in September 2020, compared to 40,000 in February 2020.

While curiosity about consumer behaviour after COVID-19 abounds, we found that the actions of companies and governments matter at least as much in determining whether new behaviours are likely to stick, including signs of a move to more sustainable consumption in some places. For example, surveys show that between 30 and 50 percent of consumers indicate an intent to buy sustainable products—although such products account for less than 5 % market share of sales in part, because companies charge more for them and governments offer no incentives to purchase them. Companies made decisions that set the choices consumers could make during the pandemic, and governments established guardrails with their stimulus policies. To determine how enduring shifts to new digital channels may be, we examined consumption using a “stickiness” test we devised that takes into account the actions of companies and governments as well as consumers.

Geography matters in determining what behaviors will stick post-pandemic

For consumers we examined how much they valued a new behavior, what type of experience they had, and how big an investment they made in it. For companies we assessed how an industry responded to the new behavior and changed structure as a result. Film studios, for example, could quickly pivot to direct-to-consumer distribution via streaming services, while airlines could do little to adapt. For governments, we looked at how economic and regulatory policy affected consumer behaviour. The US government, for instance, allowed reimbursement for telemedicine and the use of food assistance payments online, two small changes that enhanced convenience and mitigated safety concerns. For each of these, we assessed the extent to which a factor increases the likelihood of lasting change, decreases the likelihood of lasting change, or has a neutral impact.

Businesses shifted to remote work and virtual meetings

Employees who could work remotely set up offices in their homes, driving sales of standing desks, office chairs, and other equipment and tools for kitting out home offices. To assess the future of remote work, we analysed more than 2000 work activities across 800 occupations to see which could be done without a loss of productivity from home. We find that 20 to 25 % of the workforces in advanced economies could work remotely without losing effectiveness. That is four to five times as many as were working from home before the pandemic. Already companies are devising hybrid remote work plans that give them the opportunity to reduce office space. That in turn may change the geography of work and urban centers, as well as reduce business travel. We estimate that 20 % of business travel may never recover as virtual meetings replace in-person ones. Already companies are devising hybrid remote work plans that give them the opportunity to reduce office space. That in turn may change the geography of work and urban centers, as well as reduce business travel. We estimate that 20 percent of business travel may never recover as virtual meetings replace in-person ones.

Companies accelerated their adoption of digital, automation, and other technologies

To cope with constraints on physical proximity, sharp surges in demand, and other sudden shifts required by COVID-19, businesses stepped up use of digital tools, automation, and AI. Retailers like Amazon, Walmart, and Target enlisted industrial robots to pick, sort, and track merchandise in warehouses to manage surging e-commerce demand. AI-powered chatbots were used to reduce customer contact. Robotic process automation helped financial service firms cope with a surge in small business loan applications and assisted airlines in issuing travel refunds.

Businesses engaged in a burst of bold innovation and speedy decision making in response to the deepest economic shock since World War II. Companies digitized many activities at rates 20 to 25 times faster than they had previously thought possible, according to a McKinsey survey. For instance, one large retailer developed a curbside-delivery business in two days; its prepandemic plan had called for an 18-month rollout. There may be more to come. Three-quarters of executives in North America and Europe surveyed by McKinsey in December 2020 said they expect investment in automation to increase through 2024.

Related Video

During the pandemic, governments and businesses responded boldly. Both must broaden action to deliver on productivity while boosting consumption and investment.

Steps taken to keep business going during COVID-19 have the potential to increase productivity

Such bold actions by companies could produce a 1 percentage point increase in annual productivity growth to 2024—if these innovations spread widely among companies of all sizes and demand recovers and stays strong. This would be more than double the rate of productivity growth experienced after the 2008 global financial crisis in seven economies—France, Germany, Italy, Spain, Sweden, the United Kingdom, and the United States. If realized, we estimate this would add about $1,500 per capita in Spain and USD 3500 per capita in the United States to GDP in 2024. The largest potential incremental rise in productivity growth between 2019 and 2024 could occur in the healthcare, construction, information and communications technology, retail, and pharmaceuticals sectors. However, accelerated automation risks speeding up necessary reskilling and worker transitions, and could undermine employment, median incomes, and therefore demand. Of the productivity potential we identified, 60 percent comes from firms seeking to reduce costs—including jobs—rather than creating top-line value.

Savings for some, income concerns for others

Improving the customer experience can be COVID-19 put a deep dent in consumption in 2020, as spending declined between 11 and 26 % in the initial months of the pandemic in the United States, Western Europe, and China. Consumers sharply cut back on travel, entertainment, restaurant dining, and other in-person services. Many low-income service workers were furloughed or lost their jobs and were supported by unprecedented government stimulus packages that more than covered their lost incomes and helped mitigate the fallout. Indeed, the big stimulus amounted to a reversal of two decades of institutional pullback, reviving the social contract. Meanwhile, high-income households with members who could work remotely saw their savings rise as opportunities to spend on travel, entertainment, dining, and other forms of leisure dried up. Savings rates spiked 10 to 20 percent in the United States and Western Europe, leaving many households in a strong position to spend once the pandemic is brought to heel. While consumer spending as a whole is set to rebound, the recovery is likely to be uneven, especially in the United States, as higher-income households emerge largely unscathed financially, while lower-income households have lost jobs or face income uncertainty.

Savings for some, income concerns for others

Improving the customer experience can be COVID-19 put a deep dent in consumption in 2020, as spending declined between 11 and 26 percent in the initial months of the pandemic in the United States, Western Europe, and China. Consumers sharply cut back on travel, entertainment, restaurant dining, and other in-person services. Many low-income service workers were furloughed or lost their jobs and were supported by unprecedented government stimulus packages that more than covered their lost incomes and helped mitigate the fallout. Indeed, the big stimulus amounted to a reversal of two decades of institutional pullback, reviving the social contract. Meanwhile, high-income households with members who could work remotely saw their savings rise as opportunities to spend on travel, entertainment, dining, and other forms of leisure dried up. Savings rates spiked 10 to 20 percent in the United States and Western Europe, leaving many households in a strong position to spend once the pandemic is brought to heel. While consumer spending as a whole is set to rebound, the recovery is likely to be uneven, especially in the United States, as higher-income households emerge largely unscathed financially, while lower-income households have lost jobs or face income uncertainty.

Most job growth may occur in high-wage occupations, leaving low-wage workers with fewer opportunities

Our research finds that job growth is likely to be concentrated in high-wage occupations as a result of COVID-19’s influence on trends. We expect strong growth in jobs in healthcare and the STEM professions, as well as in the green economy, for instance wind turbine technicians. Transportation jobs that we expected to decline before the pandemic now may instead grow, thanks to the growth of the “delivery economy.”

Demand for many other occupations may decline through 2030, including customer service and sales positions, food service jobs, and office support roles, such as administrative assistants and bookkeepers. The disruption is likely to have the biggest impact on low-wage jobs that have served as a safety net for displaced worker in the past.

As a result, more than 100 million workers across the eight countries we studied are likely to need to change occupations by 2030. That is 12 percent more than our estimate before the pandemic, and as much as 25 percent more in advanced economies. Attaining jobs in the growing occupations will require markedly different skills than many of the low- and middle-waged jobs likely to be displaced.

The largest firms are innovating in ways that could boost productivity growth—but the risk is that smaller firms are left even further behind

So far, accelerated adoption of technology and operational innovation has been particularly pronounced among “superstar” companies, which we define as those in the top 10 percent of firms by 2019 revenue and economic profit. Between the third quarters of 2019 and 2020, capital expenditures declined by much less for large superstars than for other groups of companies. R&D investment by large US superstars grew by about USD 2.6 billion, or 66 % of total R&D investment growth in the third quarter of 2020 compared to the prior year, compared to USD 1.4 billion spent by all other types of firms. Other research by McKinsey has found the gap in economic profit between those superstars and everyone else widened during the pandemic. If this concentration persists, there could be a repeat of the “great divide” observed after the global financial crisis when, at best, only a minority of companies, households, and regions enjoy productivity and income growth. More businesses will need to share in those gains for the changes prompted by COVID-19 to have significant impact on productivity growth.

History offers lessons about how economies recover from crises

The stakes are high. In the United States, the difference in having a per capita growth rate over the next decade that mirrors the post war growth (3.1 percent) or that after the great financial crisis (1.0 percent) amounts to 27 percentage points, or about USD 17000 per person in annual income. Achieving the better outcome requires expanding the supply side of the economy, in terms of both human capital and physical capital, and ensuring that incomes rise for a large swatch of the population, creating robust demand.

To achieve a broad-based recovery, companies and policy makers will need to move with the same alacrity they used to respond to constraints imposed by COVID-19 and, in doing so, enable higher productivity growth, better jobs, and expansive consumption. Ensuring that digital and other technology adoption is broad-based and that productivity increases are matched by rising wages is key. It will also be essential for business leaders and policy makers to mitigate workforce disruptions and offer support to vulnerable workers as they transition to new jobs with higher wages but requiring different skills. Achieving a better outcome is doable but will require faster, bolder action than we saw during the recovery after the 2008 financial crisis.

During the pandemic, many large companies developed strategies to support their small- and midsized suppliers. Continuing these actions are vital to delivering any potential productivity dividend. Many companies accelerated payments to some suppliers and helped them interpret changing government regulations. Other companies are helping their small and mid-sized suppliers digitize the supply chain, invest in sustainable operations, and utilize automation and AI to raise efficiency.

COVID-19 created opportunities to start new businesses

Changing consumption patterns spurred by COVID-19 have opened new opportunities, leading to shifts in market share and possibilities for new entrants. While many small businesses were unable to survive pandemic lockdowns, new business start-ups nearly doubled in the United States during the pandemic. During most recessions, new business formation declines as entrepreneurs face uncertain demand. But during COVID-19, many workers in the United States who were furloughed, laid off, or dropped out of the labour force for other reasons (such as childcare) took the opportunity to create the start-up of their dreams. The surge in new business creation included not only workers who chose self-employment, but also many “high propensity” businesses that are more likely to hire employees and create payroll jobs in the future.

Additional unemployment benefits and stimulus checks that were part of massive government stimulus packages may have enabled these new ventures. Governments can support continued start-up growth by extending the digital architecture to give everyone access to affordable broadband connections and by making permanent some temporary changes in regulation that allowed new businesses to flourish during the pandemic, such as telemedicine.

Enabling a sustained rebound in consumer spending will require stepping up retraining opportunities for workers displaced by automation and ensuring that young people entering the labour force have marketable skills. In advanced economies, having some type of credential, vocational skill, or tertiary degree can help achieve a career path with upward mobility. The scale of the retraining challenge goes beyond those workers displaced by the effects of COVID-19; even workers who keep their jobs will need to continuously learn new skills because the tasks required of them will evolve. For displaced workers, retraining programs could be delivered in a matter of weeks or months; for many mid-career workers, “wrap-around” support programs that provide income, food, transportation and childcare may be critical to enable participation in retraining programmes.

Achieving a high-growth recovery requires firms to focus on revenue growth in addition to cost efficiency. That could drive higher productivity growth and increase employment, instead of greater productivity coming at the expense of employment. Previous MGI research has found that in periods when companies have developed new products and services that create demand, high productivity growth can result in employment growth. This may be happening now: In the most recent McKinsey survey on AI, a much larger share of companies reported adopting AI to create new business opportunities rather than to save labour costs than three years ago.

Private and public investments, smartly targeted, can also set the stage for sustained productivity growth. For example, several persistent investment gaps could be closed now, including in infrastructure, affordable housing, and green technologies. Human capital is as important as physical capital, and changes in the tax code could treat it similarly. Additional government investment in basic science and R&D, reverting to levels seen in past decades, would also help.

The pandemic marks a turning point for economies: new patterns of consumer and business behaviour emerged at extraordinary speed and many of them will stick. Digitisation accelerated faster than many believed possible. The near-term recovery will bring relief. Yet the pandemic’s uneven impact on workers, consumers, and companies threatens to create a two-speed recovery that widens inequality while delivering tepid growth. The disruption caused by COVID-19 also offers a path to higher productivity and broad-based growth, nonetheless, if companies and policymakers seize the opportunity to address emerging gaps.

www.mckinsey.com

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Stitch Fix Works Its Makeover https://textile-future.com/archives/70328

Inditex sales grow 50 % in 1Q21, with May sales above 2019 levels https://textile-future.com/archives/70374

Helping customers on their way with a new, highly efficient shoe solution https://textile-future.com/archives/70383

Oerlikon announced on June 10, 2021, that it has successfully closed the acquisition of the Italian company INglass S.p.A. and its innovative hot runner systems technology operating under its market-leading HRSflow business. https://textile-future.com/archives/70436

Competition

Meet the Southeast U.S. finalists of the Entrepreneur Of The Year® https://textile-future.com/archives/70249

AATCC :Winners Announcement 2021 “Fashion for All” Student Design Competition https://textile-future.com/archives/70390

Data

Swiss Consumer prices increased by 0.3 % in May 2021 https://textile-future.com/archives/70256

World Bank – Global Recovery Strong but Uneven as Many Developing Countries Struggle with the Pandemic’s Lasting Effects https://textile-future.com/archives/70294

OECD CLIs continue to increase at a steady pace https://textile-future.com/archives/70400 

The McKinsey Week in Charts https://textile-future.com/archives/70545

Design

Out of the laundry room https://textile-future.com/archives/70353

3D Printing

Arkema buys 10 % Stake in Serial 3D Printing Firm ERPRO 3D FACTORY https://textile-future.com/archives/70559

Divestment

Clariant completes its divestment programme by reaching agreement to divest its Pigments business https://textile-future.com/archives/70591

EU

European Commission welcomes the final adoption of the EU’s new long-term external action budget for 2021-2027 https://textile-future.com/archives/70451

Swiss State Secretary Hirayama in Portugal to attend Africa–Europe Space Earth Observation High-Level Forum and hold bilateral talks https://textile-future.com/archives/70587

Events

ZhejiangTex 2021 grandly opened on June 8, 2021  Trans-boundary Innovation, Intelligent Textiles & Healthy Future https://textile-future.com/archives/70299

Marzoli will exhibit at ITMA Asia + CITME (Booth H8 – D50) in Shanghai, China https://textile-future.com/archives/70522

EFI Reggiani introduces State-of-the-Art, Industrial Entry-level BLAZE Textile Digital Printer https://textile-future.com/archives/70528

Extension

Ascend expands HiDura™ LCPA production capacity https://textile-future.com/archives/70454

Fibre

The Fibre of Champions https://textile-future.com/archives/70461

Finland

WEEKEND WRAP: Premium fashion collab, illuminating jewellery and tunes with the right notes https://textile-future.com/archives/70489

Furniture

Runs like Swiss clockwork https://textile-future.com/archives/70318

G 20

G20 GDP returns to pre-pandemic level in the first quarter of 2021, but with large differences across countries https://textile-future.com/archives/70422

Launch

Archroma launches its new ‘Color Atlas’ for polyester to turn inspiration into a collection in just a few clicks https://textile-future.com/archives/70286

Quality Investment

OECD and Global Executives engage with the Blue Dot Network to develop Certification for quality infrastructure investment https://textile-future.com/archives/70271

Intellectual Property

WIPO The Hague System: In Focus – The International Designs Bulletin https://textile-future.com/archives/70252

WIPO for Creators welcomes First Partners: CISAC, DDEX, IAF, ICMP, IFPI, IMPF, IPA and SCAPR https://textile-future.com/archives/70396

Nonwovens

EDANA – Online Nonwovens Symposium proves insightful and engaging https://textile-future.com/archives/70567 

Research

How catalysts age https://textile-future.com/archives/70473

Sustainability

Lisbon sneaker startup launches vegan sneakers using upcycled party balloons https://textile-future.com/archives/70274

A sustainable vest for Maratona dles Dolomites cyclists https://textile-future.com/archives/70410

SABIC and Local Motors conduct feasibility study of recycling scrap thermoplastic parts and shavings from 3D printing process https://textile-future.com/archives/70458 

Nestlé develops two new packaging innovations for Vittel® natural mineral water bottles https://textile-future.com/archives/70510

Switzerland

Switzerland is signing of memorandum of understanding with Federal Customs Service of Russian Federation https://textile-future.com/archives/70393

Measures to strengthen Switzerland’s competitiveness in context of international tax policy https://textile-future.com/archives/70486

Trains

The best place to go trainspotting is… https://textile-future.com/archives/70480

Virtual Tour

Swiss Empa: Now also a virtual experience – NEST to open its virtual doors https://textile-future.com/archives/70440

Worth reading

Worth Reading – Issue 71 of Performance Apparel Markets has now been published https://textile-future.com/archives/70563

WTO

WTO DG Okonjo-Iweala welcomes President Kaljulaid of Estonia to the WTO https://textile-future.com/archives/70446

The Director-General welcomes the Head of Government of Tunisia, H.E. Mr. Mechichi, to the WTO https://textile-future.com/archives/70577