As Europe’s lockdowns begin to loosen, resources need to be directed with care.
The lockdowns European countries imposed when the COVID-19 pandemic hit have caused supply-and-demand shocks in all industry sectors. In response, governments have launched lifeboats, such as loan guarantees, and value transfers, which include income support and exceptions to social-security contributions. Loan guarantees form the backbone of fiscal measures in Europe, accounting for at least 69 percent in each of the five largest economies (Exhibit 1).
While the measures are unprecedented in scale, so is the value at stake. According to the McKinsey Global Institute, the difference between a weak and strong recovery in the eurozone could be as much as €1.7 trillion.1
To improve the chances of making a strong recovery, European governments must allocate resources in the best possible way. In this article, we argue that for some sectors, this will mean focusing on navigating safely through the COVID-19 crisis. However, for others—such as those that were already in structural decline and were then badly hit by the crisis—it will mean catalyzing structural change and preparing for restructuring.
Six archetypes and three factors
As industry sectors in Europe recover from COVID-19, they will fall into one of six archetypes (Exhibit 2).
Industries in the first four archetypes are, to varying degrees, both resilient and fundamentally strong. First, there are sectors that may be able to seize new opportunities—for example, by the effective use of digital business models. The second archetype is composed of sectors that are likely to continue to see relatively stable demand and therefore see minimal impact on operations and supply chains. Third are those that we expect to rebound after experiencing a significant reduction in demand, and the fourth group is made up of those we think will recover—but slowly.
The other two archetypes are in the unhappy position of having been hard hit by COVID-19 even as they were already facing structural problems. One is composed of sectors that have experienced severe demand shocks and will likely have to consolidate. The other we refer to as “strayers”: these sectors will need to change the most.
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