Coronavirus Lockdowns in Europe: What’s next for Small Businesses?

Unfortunately for small business owners across Europe, there is only one word that matters right now: uncertainty.

And, unfortunately, this is not a word that is pleasant for any business owner to hear. Part of this uncertainty is caused by the sheer amount of COVID-19 information being poured out by agencies all over the world. However, when it comes to planning the future of a small business in Europe or the U.K., there are only a few crucial pieces of information that are very important to understand.

The Second Wave is Coming

Researchers at Harvard have predicted that the CoV-2 virus is likely here to stay. In fact, the researchers even predict:

“Under current critical care capacities … the overall duration of the SARS-CoV-2 epidemic could last into 2022, requiring social distancing measures to be in place between 25% and 75% of that time.”

Essentially, the researchers are predicting that this first wave of COVID-19 the world has been experiencing could be smaller than the wave coming. Think of it like this… the world has been sheltering in place just long enough for the virus to spread to every corner of the world. However, lockdowns have not been long enough for the virus to completely die out. 

Therefore, large portions of Europe and the U.K. are poised to have massive outbreaks of the virus if they lift social distancing restrictions now. Unfortunately, that’s exactly what many European countries are planning on doing, in the relatively near future. 

Countries Preparing to Reopen

In light of the warnings of epidemiologists around the globe, many countries are preparing to slowly reopen their economies. 

 

Spain

Spain may be one of the first countries to lax its quarantine measures, reopening parts of the economy as soon as April 26. However, this seems extremely unlikely from an epidemiological standpoint. As of April 24, Spain was experiencing nearly 7,000 new cases of coronavirus per day. As of April 25, Spain eased part of the lockdown requiring children to stay inside. Instead, they are now allowed to go out for 1-hour of supervised outdoor playtime. While children are not usually highly susceptible to the disease, they can still spread it. 

Releasing social distancing guidelines at this point would be even more disastrous to the economy than the initial lockdown. It is also likely to overwhelm the carrying capacity of the nation’s health system, which can drive the death rate to much higher levels. However, the country is already allowing for the slow relaxation of social distancing measures – starting with the construction and manufacturing industries.

 

Denmark, Czech Republic, Austria

As of April 24, 2020, these three countries are seeing nearly 300 new cases – per day. Regardless, all three of these countries are set to begin rolling back their social distancing measures. These countries plan to allow students to go back to school, and some are even weighing allowing foreign travel. 

From a scientific standpoint, this is pure folly. Remember that this pandemic started in a town in China that had less than 100 cases. Without measures to protect against the spread of the disease, these countries will almost certainly experience much larger outbreaks. So, one can only hope that these countries will hold onto their social distancing guidelines a bit longer so new cases can be tracked and reported efficiently when the economy opens back up. 

 

Italy

Italy, which had been the epicenter of the epidemic in Europe, has extended the stay-at-home order until May 3. As of April 24, the country was experiencing in excess of 3,000 new cases per day. However, businesses in Italy are demanding to reopen as their government grants are quickly running out and businesses are being bled dry. It is unclear whether and how much the Italian government will buckle to these demands. 

 

Everyone Else….

While the countries listed above are some of the most concerning within Europe, all countries are essentially facing the same predicament. The Harvard researchers giving the direst predictions also suggest that quarantine measures should be continued 8-12 weeks beyond the “peak”. 

Since most countries (including the U.K., Germany, France, and others) have not come close to peaking out, social distancing measures should stay in place for the next 3 months!

Since that is unlikely to happen, small business leaders need to really look ahead towards the next year and build an attrition strategy that will allow them to survive the difficult months (or years) ahead. 

 

Don’t Forget about Brexit!

While Brexit has certainly been overshadowed by the COVID-19 outbreak, it is still an ongoing process. Unfortunately, not much progress is being made as world leaders are forced to grapple with the new realities that coronavirus has brought to the world. 

Here comes that word again: uncertainty. While Brexit supporters are still pushing a full separation of the U.K. from the E.U., the “Remain” party is gaining ground again – potentially trying to force another referendum after coronavirus restrictions are lifted. Pound sterling is volatile and hard to predict

For small business owners, this simply means that the uncertainty and frustration surrounding the U.K. separation from the E.U. is simply going to be longer, tougher, and more frustrating.

 

Cash is King: Get Ready for the Long Haul

Regardless of what country you operate in, the message here is clear: this pandemic is going to continue ravaging Europe, the U.K., and the entire world. As various political factions fight to release the social distancing guidelines, any protection Europe has gained through a concerted effort will quickly disappear. 

European leaders are already in talks to provide massive financial aid and funds to rebuild the economy after the virus, but those talks are on shaky ground at best. While leaders generally agree that the funds are needed, it is unclear who will be funding it, how the funds will be distributed, and what portions of the economy are the most important to save.

The message: you are essentially on your own until governments figure out what they are doing. 

So, hold onto as much cash as you can, as long as you can. This may be one of the only means of restarting your business after coronavirus has ravaged the global economy. However, there is one important tool all entrepreneurs should be aware of that can significantly increase business stability in these uncertain times: the Forward Contract.

Forward Contracts

A forward contract is exactly what it sounds like – a contract that sets the price and volume of purchase on a specified date in the future. Like the previous wave of infection, the next wave of coronavirus is likely to upend markets, cause chaos in foreign exchange rates, and completely disrupt any “normalcy” that takes place between now and then. 

With a forward contract, you can also specify an exchange rate you are comfortable meeting in the face of global uncertainty. This specificity allows you (and the company you are forming the contract with) to maintain reasonable and straight-forward deals regardless of what the broader market is doing. In fact, the deployment of forward contracts amongst small businesses across the European Union and the United Kingdom may be exactly the right tool to counter the massive amounts of uncertainty small businesses are facing across the globe!

 


Check out our Forward Contract guide here – specifically tailored for small businesses which are struggling right now. We also have a new unique Currency Hedging in Extreme Volatility article!

Leave a Reply

  Subscribe  
Notify of