Remember six months ago, when all of us celebrated the start of a new decade? Traditional media and social media were sprawling with articles and posts highlighting all the nice and inspiring things that lay ahead. The economy was in great shape and things were looking rosy. As late as 24 January 2020 (a day after Wuhan went into lockdown) the International Monetary Fund predicted in 2020 the world economy would strengthen and global growth would accelerate to 3.3%, up from 2.9% in the year before.
Today, six months down the line, January seems like ages ago and earlier this week the IMF has again published their forecast. This time the global economy will contract by 3% this year. That is an unprecedented change in the outlook by minus 6,3% from January. A lot has happened since we cheerfully and full of optimism celebrated the new decade.
Whereas January may seem like another era, we all distinctly remember March, as this was for most of us the month in which collectively our dreams got shattered. None of us could have ever imagined that we would be deprived of some of our most fundamental civil rights. We were placed under ‘house arrest’, were not allowed to meet with friends and relatives, shops and restaurants and businesses were closed, as where borders. The world suddenly did not look rosy, but dark and grim.
Despite the traumatic life changing nature of the events, most of us have coped really well. I have been impressed by the speed and effectiveness how many businesses shifted from office work to home work in just one-week time. The legal world no exception. For some weeks within law firms the mood has remained good and action oriented. Uncountable webinars and news letters have been produced to inform clients. Virtual Friday afternoon drinks were organized to keep the mood.
Now people are fatigued
Tomorrow is solstice, the day on which we have the longest day of the year. In some countries this event kicks-off the Summer holiday season. Seems like a good moment to take stock and establish where we are today. As of this week most borders in Europe have reopened and in many countries the lockdowns have ended. After three months many seem desperate to return to normal. Unfortunately the Coronavirus does not take a Summer break and it’s still out there as it was before.
People are fatigued. Three months of being on high alert are taking their toll. Working from home lawyers have been very productive. The line between work and private life has gradually blurred and many have put in more work hours than before. Fewer people have reported sick. Normally if you didn’t feel well, you stayed at home until you felt better. Now that we are at home anyway, why not do a bit of work? As there was no place to go, also fewer holidays have been taken over the past three months as compared to any other year. As a result for most law firms production went up and many have not experienced the feared drop in billable hours. Whether all these hours will actually result in fees-collected remains to be seen.
Will we have a V-shaped recovery?
The past three months have been pretty rough on the economy. Placing two-thirds of the world population in some sort of lockdown has been an unprecedented and dangerous economic experiment. Governments have pledged trillions to help businesses survive. No-one knows for sure if this is going to work. Much will depend on how the virus continues to spread and the government measures to contain it. From a rational point of view there seems no reason to be cheerful. Hence the pessimistic outlook from the IMF this week. Various governments and financial institutions have similar projections: economies are going to shrink more than they have ever done since WW2. There is no agreement on whether there will be a V-shaped recovery, U-shaped, W-shaped (in case of a second wave of the virus) or even L-shaped.
As said, closing down the global economy, is a dangerous experiment. There is no past data that we can use to help predict how things are going to develop. One thing we have already seen is that it is highly unlikely that developments will follow a rational pattern. Most short term forecast have turned out to be wrong. Employment in the US is recovering much faster than anyone had anticipated. Travel organizations are reporting an unexpected surge in demand for Summer holiday destinations and accommodations. The coronavirus hasn’t gone away; so why are people acting as if it has? We should not underestimate how much people have been worn-out by the stress and the restrictions of the past three months. People want to return to normal; they want their lives back.
Niels Bohr once famously said: “Prediction is very difficult, especially if it's about the future.” The truth is that nobody knows what to expect. We are now in some sort of interbellum: the state of active alert has ended. Businesses have started to reopen as have parliaments. Lawyers have -in part- returned to the office. We are all looking forward to the Summer Holiday. All Corona and crisis response related topics have become sort of irrelevant, but it is still not business as usual.
To be honest, we do not know what to expect. Most of our clients have done well during the past three months. More or less on par with same period 2019. Now that we are in the quiet of the storm, law firms are bracing for what might or might not lay ahead. Will there be an increase or decrease in demand for legal services? Your guess is as good as mine. One thing is however clear: we are not out of the woods yet. There might be a vaccine and/or cure for Covid-19 in a year’s time. It is highly questionable if there will equally be a quick cure for the economy. This will mean that law firms will have to adapt their business model to a new reality.
This is our last weekly article before the summer. Right now you do not need corona-crisis related information anymore, but you are also not quite ready for ‘business as usual’. Let’s use the Summer to gauge how things are developing and to establish a new baseline. We will be back with fresh articles Friday 4 September latest, but earlier if needed.
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