The world is getting used to a new 'C-word', COVID-19. Less than a quarter of the way through 2020 and the global pandemic already has us evoking 'fond' memories of a simpler time in 2019; When we only had catastrophic bushfires and Climate Change to contend with.
We are still in the beginning phase of this pandemic and our collective global efforts over the next 6 months will hopefully halt its rapacious advance. But at what cost to the world economy, and for the purposes of this article, what cost to the Physical Security Industry?
The total value of world production of Physical Security products at factory gate prices in 2019 was $34.31Bn, which we estimated was an increase of 8.5% on 2018. Our analysis over the last 5 years, estimates the market grew over 7% per year. And over time, the industry has proven to be robust, driven forwarded by the consistent forces of increased global terrorism and crime.
However this inevitable new cycle of recession will certainly reduce demand in 2020. Our current best estimate is that the 1st quarter of 2020 will show a decline of 5%, caused by reduced demand in Asia, and specifically China, which is the largest single market for Video Surveillance in the world. Further declines in the next 3 quarters will almost certainly follow. The forecast for 2021 will depend on how the measures to control COVID-19 take hold. If the pandemic shows that it is under control by September 2020 then world sales of Physical security equipment could return to growth by the 2nd quarter of 2021. After all, COVID-19 is a temporary and not a structural issue.
Above all the COVID-19 outbreak will force suppliers to radically rethink how they operate their business, in particular resilience to externalities. In parallel, there will be lessons to learn on having a more coordinated and resilient supply chain. The Video Surveillance business is far too dependent on Chinese OEM and component manufacturers. With many of them offline since January, what impact will that have on supply?
A recent analysis by IHS Markit suggests that "Global manufacturing contracted at the fastest rate in over a decade during February... led by a record slump in activity at China's factories".
Like with every crisis, there will be opportunities for those Physical Security companies that are prepared to adapt to the new COVID-19 reality. For example, Access Control readers that can eliminate physical contact such as through mobile phones could see a rapid increase in demand. And AI Video Analytics could very likely to be required to play an important role in keeping order on our streets, while law enforcement departments are being stretched to cover new responsibilities.
Specific vertical markets such as Retail, Hotels and Leisure are likely to be hit hard in a recession. It will be the public sector that will have to pump prime the world economy with infrastructure projects in Transport, Hospitals and Education and likely the pharmaceutical industry will need to invest more in new facilities to meet the inevitable demand for medicine and vaccines to combat the virus.