April 3, 2020
The coronavirus pandemic and subsequent quarantine measures are taking a toll on the world’s economy. According to McKinsey, things could go one of two ways.Following the first scenario, nation-wide quarantines, travel bans, and self-isolation will result in a sharp decline in consumer and business spending through Q3. Consumers stay home, businesses operate at a loss, startups struggle to close investment rounds, and unemployment claims hit an all-time high across the USA and Europe.
In the second scenario, the coronavirus doesn't come under control until much later. The quarantine will stay in effect for the rest of 2020, resulting in massive bankruptcies and corporate lay-offs. Thanks to banks’ strong capitalization, the financial sector won’t collapse, but the global economy will not show signs of recovery until the spring of 2021, displaying a modest GDP growth of 0.5% this year.
Although China, the world’s leading manufacturer of semiconductors, storage solutions, and electronic devices has resumed most of its factory output, the technology industry will hardly escape the turmoil.
The coronavirus has changed the way users and businesses work, interact with technology, and consume digital content.
In particular, the quarantine is affecting technology startups, as smaller companies typically plan a runaway of six to eight months between investment rounds. In the coming months, VCs will most likely become more selective, cut investments in half, and continue working with existing companies to help them survive.
Well-off businesses like Airbnb and Uber are struggling too. The vacation-rental giant has racked up escalating losses and is looking for investors, while Uber is making 70% fewer trips in the cities most affected by the virus.
According to an online survey conducted by Blind, 53.8% of employees at large US technology firms are afraid of losing their jobs, while 62% of the respondents believe the crisis will affect their income.
However, many technology companies see the time of uncertainty as a business opportunity for the industry.
The extent to which technology companies are being affected by the COVID-19 outbreak shows how much the industry depends on China, its production facilities, and buying power. Microsoft, for instance, has recently reported the quarantine was slowing down the production of Surface laptops, while Apple might not meet their revenue targets for the first time in 16 years.
The software development industry had been affected, too. Global technology companies that outsource IT services or have R&D facilities in Asia don’t have an effective remote workforce strategy in place and are struggling to remain productive. Even though the supply-and-demand imbalance within the technology sector will protect the US workforce from the full impact of a temporary decline in IT hiring, 30% of small and medium-sized businesses are dealing with significant financial strain. As a result, more companies will rethink their hiring policy and partner with technology providers from regions less affected by the pandemic.
The good news is, the governments will seek the help of IT businesses during the crisis.
Besides revamping healthcare systems, technology companies will be engaged in nation-wide projects, such as Smart City initiatives and the development of disaster management platforms, that will help the world predict and prevent pandemics in the future. In the short run, e-Learning, teleconferencing, and cloud computing will remain the biggest drivers of the IT economy.