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Technology and the Economy during COVID-19

Since March 23, 2020, the UK economy has been faced with an unprecedented challenge. Gita Gopinath of the International Monetary Fund has referred to this period as “the Great Lockdown”; she predicts that it will constitute “the worst recession since the Great Depression, and far worse than the global financial crisis.”[1] But while the lockdown has had an undeniable economic impact, there are economic risks associated with reopening too soon, and across Europe we have seen plans unveiled to “phase” or “ease” out of lockdown.

It is too soon to draw firm conclusions. But it is, perhaps, not too soon to look at the sectoral impact on telecoms and consider where we find ourselves. First, it should be noted that although there is a wide consensus among city forecasters that the economic recovery will be fast (a V shaped recovery where the economy is actually larger in 2021 than it had been in 2019), the likelihood of this depends on a number of unknown and unknowable factors, not least the development and distribution of a vaccine. Optimistic economic forecasts tend to assume that a vaccine will arrive a lot earlier than the 12 to 18-month timeframe that looks plausible.

More sober analysis from the International Monetary Fund forecasts $9trillion lost in GDP from the global economy (as a recent analysis by Charlotte Street Partners points out, that would be like losing the combined outputs of Germany and Japan at once).[1] Charlotte Street Partners mention that the UK has always had a problem with “plumbing” (i.e. getting funds, loans, and so on to where they need to be), and this has put small businesses at greater risk: “Businesses are failing now and we expect this to accelerate.” [2] Their paper lists a few obstacles to recovery:

First, any containment release will be gradual and therefore so must economic activity.

Government should be able to accelerate this process to some extent. But so far most government intervention has focused on halting decline, not building the foundations of a recovery. It isn’t really possible to stimulate a locked-down economy; as the historian-economist Neill Ferguson points out, that would be like trying to “accelerate in a car with two wheels.”

Second, we know that the overall market of the world will be much smaller and it follows that the market for goods and services must be too.

Some estimates put the contraction of the global economy this year at 3%, others point out that the contraction could continue at 3% in 2021.

Third, we have already lost capacity. Businesses that have failed cannot bounce back.

In another context the pandemic has been called an “accelerator”: inequality is increasing, demographic change is putting increased pressure on health services, the fourth industrial revolution threatens to increase the number of those whose skills are no longer tenable. All these were existing problems before the pandemic and all have, in common with climate change, been massively disrupted. But we know that “disruption” is not always a pejorative term, and that opportunities present themselves in time of crisis, too.

Especially in the tech sector, there are reasons for cautious optimism. More people are relying on technology-enhanced building infrastructure to manage the return to normal working patterns, or whatever approximation of “normal” we end up settling on. Employees have to be kept safe, and IoT technology is making that possible. In the meantime, businesses have moved their operations online and discovered, in many cases, that the flexibility and speed of decentralised organisational structures are helping get work done faster, more efficiently, and without the need for constant travel adding to their carbon footprint at a time when all of us are trying to cut back. Moreover IoT solutions that have already been installed will continue to generate revenue and as a result, according to researchers at Analysis Mason, “IoT revenue will increase, albeit more slowly than previously expected, at 13% in 2020 (instead of 16% previously forecasted).” [3]

Analysis has shown that telecoms is likely to outperform other sectors as the pandemic goes on; in other words, it will continue ahead of general GDP trends, despite the lull that some have forecast in 2020. Analysis Mason Research estimate that revenue will decline 3.4% in 2020, with the most badly effected quarter being Q2.[4] But we have seen their positive assessment of IoT, and focusing on digital services they are even more optimistic:

We expect the impact to be positive as consumers use more, and sometimes adopt new, digital services. We expect some of the new behaviours to persist beyond the crisis… We expect an increase of 15% in 2020, 6 percentage points higher than we were previously expecting.[5]

In their phrase, this amounts to “2 wasted years,” an unhappy reflection but one qualified by the wider context. Digital services and IoT solutions seem to be robust, and certainly have a crucial role to play in the eventual economic recovery.

[1] https://www.imf.org/en/Publications/WEO/Issues/2020/04/14/weo-april-2020

[2] Charlotte Street Partners, “Covid-19 and the Economy: “What is Going on Here? And What Will Happen Next?”, p.4

[3] Ibid. p.5

[4] Stephen Sale, Rupert Wood and Tom Rebbeck, “COVID-19 will lead telecoms revenue to decline by 3.4% in developed markets in 2020”, Analysis Mason Research, April 2020, p.5

[5] Ibid. p.1

[6] Ibid. p.4

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