APACCOVID-19Global ExpansionInternational PEO

Will the Revised IMF Growth Projections Impact
Your Global Expansion Plans?

By May 28, 2020 June 11th, 2020 No Comments

Because of the COVID-19 pandemic, virtually all economies will see either Gross Domestic Product (GDP) contractions or drastically limited growth in 2020. The International Monetary Fund (IMF) recently released its revised projections for some of the world’s largest economies that include the United States, the Euro Area, China, and the Asia-Pacific region.

This post highlights how these economies may contract or sputter along according to the IMF’s projections, and give decision-makers insight into which of these markets may remain advantageous for global expansion in 2020 and 2021.

COVID-19 Impacted Economic Growth in All Regions

In January 2020, the IMF released its World Economic Outlook report, a regularly-compiled document covering economic growth, stagnation, and contractions in regions and specific markets across the globe. Since COVID-19, however, it released in April a revised edition that is starkly different from its original findings.

The IMF projects that global growth in 2020 will decrease to -3%—a drastic shift from the original 3.3% growth projections and 3.4% for 2021. The IMF calls this (the Great Lockdown) the worst economic disaster since the Great Depression nearly a century ago. But unlike the Great Depression—sparked by stock market collapse—the recovery depends heavily on individual nations’ response in containing the virus, not just economic countermeasures. To put this number into perspective, the 2009 global financial crisis inflicted a -0.1% contraction globally.

Regionally, North America and the Euro Area will experience some of the most intense impacts. The U.S. will see a -5.9% decrease in economic growth, while Canada expects -6.2% decline. Across the Atlantic, European Union countries and the UK feel the stress as well. Europe’s largest economy, Germany, will contract at -7.0%, the UK at 6.5%. Spain, Italy, and France will follow similarly at -8.0%, -9.1%, and -7.2%, respectively.

In the Asia-Pacific region, other top global economies will recoil. Specifically, Japan will decline at -5.2%. One bright spot, however, is that across the rest of developing and emerging Asian markets, the IMF projects modest 1.0% growth.

So, where do companies turn for the most stable growth projections in 2020 and 2021?

China and India Poised for Modest Growth

Though the IMF revised China and India’s growth projections to 1.2% and 1.9%, respectively, these two markets stand out among the ASEAN-5 countries’ -0.6% decline. The ASEAN-5 countries include Singapore, Indonesia, Malaysia, Thailand, and the Philippines.

Before the COVID-19 pandemic, the IMF projected China’s 2020 growth at 6.1%—eclipsing all other countries’ growth projections in the World Economic Outlook. This impressive growth (and the reopening of its economy before nearly all others) insulated it from dipping into contraction.

Similarly, India expected to see 4.2% growth in 2020, only 0.6% behind the ASEAN-5 bloc’s 4.8%. Still, the country faces unprecedented challenges before it finds itself inching towards the IMF’s predicted 7.4% growth in 2021.

Both China and India attracted U.S. and UK tech firms’ attention as leading global expansion destinations before COVID-19 in terms of growth and access to tech talent, according to the 2020 State of Global Expansion Report™: Technology Industry. But with much uncertainty about how markets’ economies will actually pan out, many businesses wonder if pursuing global expansion still makes sense. For many, the answer is yes—but only when using a flexible solution with built-in risk mitigation measures.

An Agile Global Expansion Method for a Post-COVID-19 World

The global economy will contract further before it grows again. However, businesses must plan now for what their international presence looks like in 2021 and beyond. All markets bring challenges, and some economies will not rebound as strongly as others. But wherever businesses choose to expand, flexibility is central to risk mitigation and successful expansion.

Until relatively recently, most businesses expanded overseas under entity establishment. However, this method comes with significant costs and restrictions, such as steep overhead costs, burdensome legal processes, and lengthy commitments to a foreign market—a key hindrance in expansion during and after the COVID-19 pandemic.

Businesses cannot predict with certainty how advantageous a market is once they begin operations. With entity setup, they are stuck in a market for long periods, with the possibility of incurring expensive tear-down costs and lengthy dissolution times.

International Professional Employer Organization (PEO) solves both of these issues without the need for an entity. An International PEO becomes an organization’s Employer of Record, hiring on that firm’s behalf. Most importantly, businesses enter and exit markets on their terms without lingering tear-down costs and processes.

So, if a second or third COVID-19 “wave” hits or economic aftershocks occur, businesses are able to exit before spending additional precious financial resources.

International PEO’s flexibility also enables businesses to hire one or more employees in multiple markets. If a company sees an opportunity in India but also identifies an opportunity in Germany, then it can test both markets with a short-term project in each and then decide whether a longer-term presence makes financial and operational sense. In the end, International PEO’s inherent properties make it the most flexible, agile, and cost-effective solution for navigating the most uncertain times witnessed in more than a century.

Go Global with Confidence

COVID-19’s impacts will last well beyond 2020—but so will businesses that prepare for a post-pandemic world. Velocity Global’s International PEO solution provides businesses the flexibility and expertise needed to navigate uncertainty in more than 185 markets, and the trusted partnership required to take the first confident step.

Ready to come out ahead of your competition and lead your space in the post-COVID-19 landscape? Let’s make it happen.