It’s certainly no surprise that economies across the globe are being severely impacted by the COVID-19 pandemic. While stock markets worldwide have entered bear territory, some have started to recover lately. And closer to home, the longest economic expansion in US history is clearly at risk of a recession, be it a short or perhaps prolonged one.
This post presents data and opinions from Mesirow Financial, a Chicago-based investment banking and M&A facilitator, especially in the papermaking and packaging-converting sectors. Here are some Converting Curmudgeon bullet points:
- Overall, Q2 2020 will be hit by severe declines in GDP, a sudden surge in layoffs, and a collapse in consumer spending. As of this post, about 10 million Americans filed for unemployment benefits in the second half of the month of March alone.
- US GDP may fall to -6.2% in FY 2020 but could seriously reverse course and climb to +5.5% in 2021. Europe may do a similar “flop-flip,” falling to -1.1% this year, then rising to a positive but anemic +1.0% next year. Check out the chart above which shows a global economic forecast for real GDP-growth rates by region and the US in particular.
- During the last recession, share prices for the packaging industry declined 55%; they are down now about 38% already from their peak, Mesirow says. M&A activity dropped 70% peak-to-trough in the 2008-2010 recession. Similar declines could happen this time as well, especially as the whole planet is involved, not just the US.
- On the plus side, the packaging industry may be less vulnerable to declines because of the need to package foods, beverages, OTC medicine, pharmaceuticals and medical supplies – all essentials right now. Mesirow says the packaging field has sufficient liquidity to withstand the expected but modest volume fallbacks. Historically low oil prices are also now helping to drop raw-material costs for resins, coatings and plastic films.
- Among the longer-term implications of COVID-19 for packaging: Greater use of e-commerce and delivery services for (groceries, pharmacies, restaurants, et al); and increased focus on hygiene, health and wellness in all sorts of products (and their packaging).
My Thoughts: If the COVID-19 pandemic has taught us anything, it’s how incredibly interconnected the global population is today. In the span of less than three months, the coronavirus spread to every nation on Earth, and no one is immune. No matter what your company makes or what service it provides, reducing dependence on imports and boosting domestic production will be a key tactic for the next decade. Personally, I was shocked to find out 80% of prescription drugs taken by patients in the US are made in China, and a majority of medical devices and supplies are also imported. As much as I’m against excessive federal government oversight into business, I’m hoping some amount of regulation (or even legislation) will be enforced to make more things at home.