The coronavirus pandemic is taking a major toll on the US economy, but the possible outcomes could be even more dramatic.
The coronavirus pandemic has sent shock waves through the US economy as businesses are forced to shut down or accommodate virtual operations. These changes are projected to cause the GDP to drop by as much as 40% in Q2, according to the US Chamber.
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The future with COVID-19 is difficult to predict. To help CIOs and tech professionals prepare for this uncertainty, Forrester released a report outlining three possible scenarios for the upcoming economic and tech market outlook.
The report, titled US Tech Budget Outlooks in a COVID-19 Recession, found that the best-case economic scenario would present a 5% drop in tech spending in 2020, while a worse scenario showed a decline of 9% in 2020 and 5% in 2021.
While it's difficult to make definitive predictions around coronavirus's impact, there are two scenarios that have a high possibility of happening, and one ugly scenario, said Andrew Bartels, principal analyst at Forrester and author of the report.
The good: Scenario A
Scenario A is the best case, according to the report. In this instance, the virus' infection and death rates would peak in Q2 2020 within the US and Europe, with impacts on tech markets and economies hitting in Q2 and Q3, but reversing in Q4 2020.
"There's some expectation out there that you will see this big bounce back and things will turn to normal. That could happen, but I think it's unlikely," Bartels said.
This scenario currently has a 30% probability, but could change if more people engage in efforts to "flatten the curve," and if the new federal economic stabilization program helps counter the impacts of the country's widespread layoffs, Bartels said.
The US will inevitably experience a recession in 2020, with cuts to US tech budgets, the report found. This recession will be bad, but relatively short in duration.
In scenario A, US spending is predicted to fall by 5% in 2020, but will recover and only fall by 0.1% in 2021.
Hardware, tech consulting, and telco services will see the worst of spending cuts, the report found. Computer equipment will fall by 11.9%; tech consulting and systems integration services will decrease by 10.5%; and telecommunications services spending will see a drop by 4.9%, according to the report.
The bad: Scenario B
"Scenario B assumes that this doesn't play out as quickly," Bartels said.
This scenario would happen if the pandemic and economic fall last through 2020, and only start to improve halfway through 2021. Scenario B has a 60% probability of happening, the report found.
"Things may improve in New York as they have improved in Washington State, but they could also deteriorate sharply in Texas and Ohio, in the Midwest, or the South—-areas that have been slow to adopt [precautions]," Bartels said. "The [pandemic] is then no longer a one- or two month event, but a three-, four-, five-, more maybe six-month event."
In Scenario B, US tech budgets would be cut by 9% in 2020, and then by another 5% in 2021, the report found.
The recession would also last into 2021 in this situation. The social distancing and quarantine efforts to control COVID-19 would finally proliferate across the country, but the pandemic will reemerge in the latter half of 2020, according to the report.
In this scenario "the virus turns out to be more stubborn than we think, containment efforts are slow to take off, the economic stabilization efforts turn out not to be as quick-hitting as is hoped, all of which leads 60% of companies who were thinking that this would be relatively short to realize it's going to be relatively long," Bartels said.
Hardware, telco services, and tech staff spending would weaken in 2021, within this scenario. After a full-year of recession, purchases of computer equipment would drop by 16% in 2020 and between 12% and 16% in 2021.Telecommunications services would drop by 7% in 2020 and 3% in 2021, and staff spending would drop by 3.3% in 2020 and 2% in 2021, the report found.
The ugly: Scenario C
The most dangerous of options, Scenario C would happen if the pandemic reoccurs and economic downturn continues well into 2021. This option has a 10% possibility, according to the report.
In Scenario C, revenue declines will be so deep and long that firms begin breaching or renegotiating the contracts that govern large parts of tech spending, the report found.
"We haven't even tried to model scenario C," Bartels said, indicating how bad that situation would be.
Which scenario will actually happen?
"We fluctuate between Scenario A and Scenario B almost daily," Bartels said. "Right now, Scenario B unfortunately looks more likely."
There are a couple of reasons Bartels thinks this is the case. One concerns how states have handled COVID-19 and the other is associated with the efficacy of the federal stabilization program.
"States like Washington, like California, and now in New York that have been aggressive have started to bend the curve," Bartels said. "But you've still got many other states that are not even at that point yet. Some 12 or 13 states haven't done anything yet.
"If every state had followed the lead of Washington and New York three or four weeks ago, that might be different. The virus could continue to expand in those states even while being contained in other states," Bartels said. "As a result, the economic shutdowns are going to be hitting not at one time but hitting in waves progressively.
Bartels said he was also not encouraged by the evidence right now in terms of how quickly the stabilization program is being executed.
However, "either scenario right now is possible," Bartels said.
To prepare, Bartels recommended companies look at their industry and realistically place themselves under whichever scenario they think will happen. Plan on that scenario, but also prepare for the other, he said.
For more, check out Cybersecurity experts warn of scams targeting coronavirus stimulus checks on TechRepublic.
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