Which industry sectors are most vulnerable to the economic downturn?

Almost all industry sectors are being affected to some degree by the current economic downturn, but our review in Section III below of a broad range of economic and financial indicators provides some additional insights into the relative vulnerability of different sectors and the sources of this vulnerability.

We have developed a PwC Sector Vulnerability Index that combines ten key economic and financial indicators for 15 major industry sectors. As shown in Figure 1.3, this index suggests that the metal products, financial services and hotels and restaurants sectors are currently the most vulnerable in the short term. Other sectors with above average vulnerability include engineering, transport and construction. The main factor behind these rankings is the relatively high cyclicality of these sectors in the past, combined in some cases with weak current financial positions.

At the other end of the scale, the chemicals (particularly pharmaceuticals), food retail and utilities sectors appear to be least exposed to the downturn in the short term, although this is not to say that they will be immune to the effects of the recession.

History is not destiny, however, and there will always be considerable scope for individual companies within vulnerable sectors to out-perform and significantly enhance their market positions. Equally some firms in less vulnerable sectors may fail. Recessions tend to be Darwinian processes in which the strongest and fittest companies survive and indeed prosper as weaker players drop out of the market. The current downturn is unlikely to be an exception to this rule.