Like the coronavirus itself, lockdowns that have been implemented to combat the spread of the deadly disease have proven to have a similar tendency to spread, from cities, to states, regions and entire countries. As much as the global vaccine rollout is slowly getting underway around the world, the more pressing concern for businesses — especially small ones — is that public health leaders tasked with bringing this pandemic under control will again restrict the public’s daily activities.
With new lockdowns being implemented in France, Italy and the U.K. as well as in California within the past few weeks, the probability that more of those measures are coming in the days and weeks ahead seems likely, despite concerns that it would push many small companies to the brink — or worse — once again.
“Most places in the United States are past the point where anything besides a lockdown is going to be effective,” said Samuel Scarpino, assistant professor and head of Northeastern University’s Network Science Institute. “Lockdowns have to go into place to save lives.”
Saving Lives, Killing Businesses
If Scarpino is right, and a second wave of lockdowns is implemented across the U.S. just seven months after the first round of lockdowns was lifted, it will be a major stress test upon a system that has been under fire and weakened.
Small and medium-sized businesses (SMBs) are particularly vulnerable. PYMNTS’ latest SMB survey data done in December found SMBs that have weathered the pandemic so far were feeling more optimistic about their future than they did half a year ago. In fact 54 percent of SMBs said they were “very” or “extremely” likely to survive the pandemic, up from 48 percent who felt that way in June. The recent news surrounding the approval of COVID-19 vaccines has alone helped further improve merchants’ confidence in their survival by 1.8 percentage points. However, should new lockdowns occur, 8.5 percent fewer Main Street SMBs said they’d be hopeful of surviving. Devastating though that would be for a significant swatch of small businesses, the rising case numbers have a majority of SMBs surveyed (74 percent) saying that closures are coming back.
And larger companies are hardly immune to lockdowns. “More than seven months into the novel coronavirus pandemic, a disturbingly large number of US companies are at risk,” Boston Consulting Group said Wednesday (Jan. 6), “confirming that economic distress is deeply entrenched and shows no sign of letting up.”
Specifically, BCG found that as of June 30, more than 60 percent of the U.S. companies it analyzed were under financial or operational stress, which marked a nearly 50 percent increase from the prior year. Clearly many businesses have stabilized, and some even prospered in the six months since the BCG study was done, and the labor market has also improved dramatically. Nonetheless, questions linger as to the ability of the system to absorb a second shock so soon after getting hit the first time.
PPP2 And Stimulus
It may have taken nine months to get it done, but the federal government did finally manage to pass a second round of stimulus, including a $280 billion updated and streamlined version of the Paycheck Protection Program (PPP) that should provide at least a few months of cushion to small, at-risk business.
There’s also expected to be some pass-through effect to small businesses caused by the second round of $600 individual stimulus checks which, like PPP2, were smaller and more limited than the first round issued in March. However, neither program was designed to provide more than short-term economic relief until the vaccine could take hold. But if a second round of mass lockdowns were to be imposed, further delaying a recovery for the economy — or even worsening it — a third round of aid marshaled by the incoming president and Congress would not be surprising.
Striking A Balance
Whether it’s health concerns, economic strife or a threat to business, the entire COVID ordeal has brought about a protracted period of unprecedented uncertainty, as well as a patchwork of responses taken in response to challenges as they arise. To that point, new research from the International Monetary Fund (IMF) looked into ways to strike a balance within the crisis response, so that nations aren’t forced to choose between a health disaster or economic ruin.
“Government lockdowns — while succeeding in their intended goal of lowering infections — contributed considerably to the recession and had disproportional effects on vulnerable groups, such as women and young people,” the IMF’s latest World Economic Outlook showed.
Since the recession was largely driven by people voluntarily refraining from social interaction out of concern they’d catch or spread the virus, the IMF said, lifting lockdowns has not led to a “decisive and sustained economic boost” as long as infection rates remain high.
While many experts say it could still take more than a year — even with the vaccine — to bring COVID-19 under control, the IMF analysts said a balance can be achieved in protecting public health while preventing a protracted economic decline.
“Lockdowns impose short-term costs,” the IMF said, “but may lead to a faster economic recovery as they lower infections and thus the extent of voluntary social distancing.”
Said another way, while lockdowns are certainly not helpful for businesses, they do tend to set the stage for a surge of pent-up demand that will find its way back to the market. The challenge is making sure “the market” can hold on long enough to be there to catch it.
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