insights from a survey of leading companies

Prepared by Eduardo Maqui and Richard Morris

Published as part of the ECB Economic Bulletin, Number 8/2020.

This box summarizes the findings of an ad hoc ECB survey of major euro area companies that looks at the long-term effects of the coronavirus (COVID-19) pandemic on the economy. While precipitating the largest short-term decline in economic activity for centuries, the COVID-19 pandemic has also brought about changes in the way businesses operate and consumer behavior, some of which are likely to survive the current crisis. In turn, these can affect aggregates such as output, employment and prices – and the relationship between them – in the long run.[1]

The main aim of the survey was to find out how major Eurozone firms perceive the long-term impact of the COVID-19 pandemic on their business. For the purpose of the survey, we defined the long term as “a new normal when, for example – due to the development of a vaccine and/or a more effective treatment, the economy will no longer be subject to significant disruptions and/or unexpected. change due to the virus or the measures necessary to contain it”. The survey was divided into three parts. The first part asked what long-term effects, if any, the COVID-19 pandemic was expected to have on the respondents’ business, e.g. in terms of business organization or the markets in which they operate. The second part asked respondents to indicate whether they agreed or disagreed with a series of statements about narratives about the “new normal” caused by the pandemic. The third part asked about the expected long-term impact on aggregates such as sales, employment and prices. Responses were received from 72 leading non-financial companies, split about 60% to 40% between “industrials” and “services”. When interpreting the results, it should be kept in mind that the size and distribution of activities of these firms most likely makes them better able to respond to the challenges posed by the pandemic than other firms.

More remote work and an acceleration of digitization were the side effects of the pandemic’s most frequent offering. Respondents were asked to briefly explain, in order of importance, up to three ways in which the pandemic would have a long-term impact on their business, for example in relation to the organization of the business or the markets in which they operate. Chart A summarizes the responses received to this open question. More than 40% of respondents cited increased home office use, while almost as many said the pandemic had pushed their company to accelerate the adoption of digital technologies, which will change the way they operate in the long term. long. About a fifth of respondents cited a more permanent reduction in business travel and/or an increase in virtual meetings, and a similar number noted the rise of e-commerce or – in business-to-business segments – “virtual selling”. About a fifth highlighted the fact that actions taken in response to the pandemic would make their business more resilient and/or flexible in the long term.

A significant proportion of respondents mentioned the decrease in demand and/or changes in the structure of demand as particular concerns. Almost 30% cited reduced demand for their products or services as one of the main long-term consequences of the pandemic for their business, while more than 20% pointed to sustained changes in the structure of demand. To a large extent, this appears to reflect a view that certain changes in living and working habits brought about by the pandemic, notably the increase in business and consumption behavior online and a consequent reduction in travel, will be incorporated.

Chart A

Key long-term effects of the pandemic reported by major companies

(percentage of respondents)

Notes: The survey question asked to respondents was as follows – “What long-term effects, if any, do you expect the COVID-19 pandemic to have on your business (for example, in terms of business organization or the markets in which you operate) ? Please list up to three impacts in order of importance.” The responses were then grouped into categories.

More than three-quarters of respondents agreed that their business would be more efficient and resilient after the pandemic. Chart B summarizes what respondents answered when asked to agree or disagree with a series of statements intended to test certain narratives about the “new normal” brought about by the pandemic. More than 75% agreed that what was learned during the pandemic would make their business more efficient and that the changes made would make their business more resilient. Nine in ten confirmed they had accelerated their uptake of digital technologies and/or automation, while more than three-quarters agreed that a significantly higher proportion of their workforce would continue to work remotely. About 60% disagreed when asked whether remote work reduces productivity, compared to only 20% who agreed with the statement. In this regard, while a reduction in informal and personal interaction was seen as a downside, many advantages were also perceived, including reduced time lost to travel, the ability to better juggle home and work commitments, and increased connection.[2]

Chart B

Testing stories about the long-term effects of the pandemic

(percentage of respondents)

Notes: The survey question asked to the respondents was as follows – “Please indicate whether you agree or disagree with the following statements regarding the long-term effects of the COVID-19 pandemic”. Respondents could answer (i) agree, (ii) disagree or (iii) not sure or not relevant. In the graph, “agree” is assigned a score of 1 and “disagree” a score of -1.

The pandemic was seen as a change in consumer behavior in the long term and likely to lead to increased market concentration while having much less impact on supply chains. Three-quarters of respondents agreed that changes in consumer behavior as a result of the pandemic would affect demand for their core product or service in the long term. More than half thought there would be increased market concentration in their sector (compared to a quarter who disagreed with this statement), with mergers expected to play a greater role than firms exiting the market . When asked about the long-term effect of the pandemic on supply chains, among those firms for whom these questions were important, a majority disagreed that their supply chain would diversify or localize; an overwhelming majority did not see their business looking to internalize more parts of the supply chain.

Most respondents considered that the pandemic would have a positive long-term impact on productivity, but a negative impact on employment. When asked to estimate the overall long-term effect on selected aggregates, 60% said productivity in their business or sector would increase, while almost none saw productivity falling as a long-term consequence of the pandemic. Conversely, 55% predicted a long-term negative impact on employment, compared to about 10% who saw a positive effect. This appears to reflect how businesses have learned to sustain production despite constraints on labor inputs due to social distancing and the identification of efficiency gains. Meanwhile, relatively few saw the pandemic have any long-term effect on their company’s capital stock. The projected long-term effect of the pandemic on sales (volumes), prices and costs was slightly negative on balance, but most respondents indicated that they did not foresee – or were uncertain about – any long-term effects.

Chart C

How respondents saw the long-term effect of the pandemic on business aggregates

(percentage of respondents)

Notes: The survey question asked to respondents was as follows – “Focusing on your business/sector, how would you rate the overall long-term effects of the COVID-19 pandemic on the following?” Respondents could answer (i) increase, (ii) decrease, (iii) no change or (iv) don’t know. In the chart, “increase” is assigned a score of 1 and “decrease” is assigned a score of -1.

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