Growth in the EBRD regions averaged 2.6 per cent in 2019, down from 3.4 per cent in 2018 and 3.8 per cent in 2017, mirroring the ongoing slowdown in global growth and global trade growth.

The Covid-19 pandemic hit on top of this deceleration and is expected to result in a substantial output contraction, at least in the near term. Numerous countries in the EBRD regions and across the world have closed their borders to people, closed schools, universities, restaurants and shops, a growing number of countries have implemented lockdowns and curfews. These measures severely affect domestic demand (as a major part of aggregate consumption involves public gatherings) and domestic supply (as workers stay at home) likely resulting in the greatest disruption to global economic activity since the Second World War.

The economic impact of domestic containment measures is compounded by several related external shocks, whereby economies in the EBRD regions face much lower commodity prices, lower demand for exports across the board and disruptions to value chain linkages, as well as a collapse in tourism and business travel. Tourist spending exceeds 20 per cent of GDP in a number of economies in the region including Albania, Croatia, Cyprus, Georgia, Greece and Montenegro.

The vulnerability of economies depends on many factors, including the structure of production, the share of workers on permanent contracts and in the informal economy, and governments’ ability to provide relief. Many governments have provided additional liquidity to the financial system and provided guidelines on forbearance to enable restructuring and extension of loans and introduction of temporary holidays when it comes to repayment of loans. Many governments have also pledged large-scale fiscal support to individuals and firms experiencing loss of income with the view to avoid mass layoffs and facilitate a speedy recovery once consumption restrictions are lifted. Fiscal space to implement such policy measures varies by country.

Assuming domestic containment measures remain in place for a few months followed by a gradual relaxation and return to normality during the second half of the year, output in the EBRD regions is likely to contract in 2020 (individual country forecasts will be released on 13 May 2020). Once the outbreak is contained, a swift recovery is possible provided mass layoffs during the containment phase can be avoided. This scenario assumes OVERVIEW 2 a modest impact of the crisis on the long‐term trajectory of output. However, there may in fact be significant longer term economic, political and likely social impacts. If lockdowns remain in place for much longer, the economic impact will be significantly deeper.

In the longer term, the Covid-19 crisis may also lead to reassessment of concentration risks in global manufacturing, perhaps leading to a new emphasis on diversification and reshoring. This could open new business opportunities for companies in the EBRD regions. View PDF

Article by Western Balkans 6

Currently the pandemic crisis is affecting the lives of people and organizations around the world. As the coronavirus continues to spread, more and more governments are implementing strong measures to save people’s lives, such as the prohibition of events, lockdowns, and shutdowns. These measures contribute to slowing down the spread of the coronavirus in order to avoid lethal capacity overloads of national healthcare systems. At the same time, they threaten the survival of firms across all sectors and industries at a global scale—with potentially devastating individual, societal, and economic outcomes, such as massive job losses and social precarity. Therefore, the corona crisis raises important questions about how firms can respond effectively to crises such as the current pandemic.

In this Virtual Special Issue, we gather and discuss key articles published in the journals of the Strategic Management Society (SMS) that shed light on how firms respond to crisis. Our overview focuses on 13 articles that substantially inform our understanding of this issue.

Based on our overview, we identity four strategic responses to crisis: retrenchment, persevering, innovating, and exit. Retrenchment refers to cost-cutting measures that potentially reduce the scope of a firm’s business activities. Persevering relates to the preservation of the status quo of a firm’s business activities in times of crisis, e.g., through debt financing and the consumption of available slack resources. Innovating refers to conducting strategic renewal in response to crisis. Exit refers to the deliberate discontinuation of a firm’s business activities.

This virtual special issue extends understanding of strategic responses to crisis for both strategy scholars and practitioners. The main contribution of this Virtual Special Issue to strategy research is to make sense of the burgeoning work on strategic responses to crisis by developing a taxonomy, one that surfaces “time horizon” as an important dimension when considering the value of such responses. This taxonomy opens up promising directions for future research, especially on the temporal dynamics of responding to crisis in time as well as shifts between strategic responses to crisis over time.

For managers, this Virtual Special Issue raises awareness of the variety of potential responses that managers have available. It also raises doubts concerning the effectiveness of retrenchment as a common but rarely effective strategic response, especially when crises last longer. Importantly, this Virtual Special Issue also includes exit as a strategic response to crisis. As this virtual special issue highlights, an exit may not be the end of the road, as often assumed, but the starting point of a new venture, one that is able to do justice to the changed business conditions that the crisis has created.

As the global community looks to South Korea to guide their nations, we wonder what sets the Korean experience apart from the rest of the world. Korea’s involvement and participation in finding their nation’s ‘new normal’ is derived from a balance between the scientific and humane efforts needed to survive and ultimately thrive during this unparalleled time.

South Korea has found such success in escaping their ‘corona blues’ thanks to a widespread transition from working, learning, and governing offline to online. Korea, itself, might often be thought of as a technological haven; however, much of their documentation and social interactions happen in a more traditional sense, offline. Business contracts are signed face-to-face, students receive lectures in lecture halls next to their peers, and they listen to their professor. For quite a while, there has been an extreme juxtaposition between the traditional and new-age Korea, which had caused a great rift in the society itself. In finding a new normal, S. Korea will be able to both increase their people’s quality of life, in addition to their role in guiding the rest of the world in understanding how to manage a balance between off- and on-line life.

In seeking an understanding of how and why S. Korea has managed to find their new normal so efficiently and implement it so effectively; we can imagine a couple of possible explanations. Korea is presented with three challenges, followed by an opportunity. Within contaminated nations, there is infection control, mental depression, and economic depression. Infection control presents itself mostly in the physical infection, physical distancing, washing of hands, wearing masks, which conjure feelings of fear — next, mental depression, which has presented itself as loneliness, fear, worry, and stress. Lastly, economic depression is seen as work closures, school closures, plunges in stock prices, and ultimately unemployment. Despite the negativity that these challenges hold, however, we are also presented with an opportunity. Examples of online transitions can be found in working from home, E-health, online shopping, online courses, and ordering groceries online. The fact that everything is changing and moving to online platforms has created a new normal in Korea.

In describing this new normal as normalcy that has nothing to do with the old normal, South Korea places itself apart from other countries. Hope, founded in the humane approach of entrepreneurship, has been at the centerfold of their innovation. A type of hope that works to evolve with the world, instead of working to maintain society until the effects of COVID-19 have passed. Therefore, it is this balance between medicine and hope that guides S. Korea’s actions. Corona is “a wake-up call for humanity.” The scientific message of social distancing and staying home is insufficient for a community. The loneliness of work and school closures and the isolation of social distancing can lead to mental depression, meaning that the scientific approach to navigating the coronavirus is not enough for humans. We need connection, and it is this fundamental empathetic need that has ultimately driven the creation of the new online normal.

Humane affection towards others, seen today as staying home, campaigns to provide food for the elderly, and supporting small and medium-sized enterprises, is an innate part of the human experience and has guided the formation of Korea’s new normal. Technology has to be used to support the humanity of others so that we can stay home and physical distance while staying connected socially. Coronavirus is our new reality, and S. Korea has done what many countries have been unable to do: accept this new reality. By admitting surrender through acceptance, we can then understand what our community needs to continue and progress. Currently, we know that we need to keep a distance from one another. Science tells us this. We also know that human survival comes from a place of empathy and that it was and is only through collaboration and cooperation that civilized societies have and continue to survive during and after moments of crisis. In light of COVID-19, we must understand that by speaking of the current physical health crisis, we mean those people who are contaminated and dying around the world. However, for the living, we are having a momentary mental health crisis. After being pushed into isolation, we are experiencing extreme loneliness and disconnect, which proves to us that the empathetic connection felt when conversing with another is essential to the human condition.

Then, once a nation has fully accepted their new realities, can they move to their new normal. South Korea has been the global example of early and widespread testing with its groundbreaking “drive-through’ inspection system. Other nations have been unable to repeat this example because they have refused to admit that the coronavirus is their nation’s new reality. We can not just buckle down and hold out until the end of contamination and confinement because we will never reach the desired outcome if we are unable to enter this place of acceptance. In S. Korea, produce, toilet paper, and hygienic masks are available to the public. Grocery stores are full, and their inhabitants have been supplied with an application to view where masks are available in the neighborhood.

Finally, it is important to note that although now people are sick, soon they will be hungry. By this statement, we are pointing to the long-term effects of COVID-19. Currently, S. Korea has managed to continue administering over 350,000 checkups (March 24). Their low mortality rate is a result of their widespread testing, in addition to quick results update. However, even South Korea needs to start thinking about the economic depression that has ensued from the pandemic. An example of a campaign to stimulate the economy is through tax breaks for small and medium-sized enterprises (SMEs). This respect, shown in the form of humane entrepreneurship, results from the innovation founded in technology-promoted campaigns.

The shift to the new normal is enormous; however, the normalcy that follows will be one that allows our governments, entrepreneurs, and citizens to flourish in a way that has yet to be seen before on a global scale. The fate of the world depends on the acceptance of reality and the formation of a new normal that will be founded at the intersection of science and empathy and will benefit the quality of life for everyone.