Despite the very dismal outlook, we can still take actions to prevent a worst-case scenario
After going through a decade and managing to avoid a global recession, 2020 has been a rude awakening as the world plunges into recession and is experiencing the sharpest spike in unemployment since the Great Depression. With a lead time of at least two years to commercialise a vaccine, the globe is now trying to adjust to a new normal.
With GDP growth estimated to contract 10%-17% and 10-million people potentially joining the ranks of the unemployed, it is important to recognise the gravity of the situation. But despite this very dismal outlook we can still take further actions to prevent a worst-case scenario. The life blood remains capital and this will be required in the form of debt funding to sustain those under funding stress and to revive those facing a liquidity crunch. We estimate that the need will span across the capital structure from investment-grade debt, quasi-equity to distressed funding for companies that succumb to Covid-induced business interruption.
Consumers will also choose to remain at home than go out for entertainment, accelerating the demand for online services. Companies will need to move to an omnichannel model to adapt fast to this change in behaviour. Fallen giants such as Edcon took far too long to change their business models, and others such as Dion Wired paid the price as online shopping for big-ticket items became the norm through the likes of Takealot.
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