By Tim Studt

This special editorial section is an update to R&D World’s 2020 Global R&D Funding Forecast (GFF), which has been published annually since January 1959 (the first issue of R&D World’s predecessor, Industrial Research). The original 2020 GFF was created and published in the February 2020 issue of R&D World (and online at www.rdworldonline.com) before the effects of the outbreak of the novel coronavirus disease (COVID-19) became apparent — which then resulted in a continuing pandemic and global recession. This 2020 GFF update was created with data collected up to July 15, 2020. Thus it only reflects the results that the pandemic has had on the global community for basically a six-month period. Continuing and future COVID-19 events can (and likely will) affect this update forecast.

The pandemic has had different consequences on R&D operations depending on the industry and technology sectors. Relatively few areas have been unaffected. Airlines, restaurants, entertainment centers and retail outlets were particularly affected (along with their suppliers) with many organizations seeing their revenues drop to just 10% of their pre-COVID-19 levels. And with falling revenues and unavailable employees, the level of R&D activity also declined as noted in the attached tables.

The R&D declines were mostly not as significant as the overall economic events because managers recognize that R&D is an essential activity geared to their organizations’ future growth. Be that as it may, R&D funding was still negatively affected by the COVID-19 pandemic. With less R&D taking place, less R&D funds were spent. And with less revenue coming in, there was less R&D funding available.

COVID-19’s long term R&D effects
Thousands of researchers around the world are working on hundreds of research programs to find a potential COVID-19 cure. These researchers are taking three different approaches: 1.) the repurposing of existing drugs; 2.) discovery and development of COVID-19 antibodies and 3.) developing and testing of COVID-19 vaccines. A recent report by the Pharmaceutical Research Manufacturers Association (PhRMA) reveals  there are more than 400 medicines and vaccines in clinical development to treat or prevent bacterial and viral infections that cause infectious diseases, including COVID-19.

With unemployment rates in double digits, 26 million out of work and factories shut down, the U.S. officially was listed as being in a recession in July, following two consecutive quarters of falling GDP (gross domestic product) values, and thus quickly dropped the U.S. GDP by 4.8%. This broke the U.S.’s longest ever economic expansion of 128 consecutive months, which began in June 2009. Before the COVID-19 pandemic, U.S. unemployment had declined consistently from 2010 to 2019, but that record was shattered in just one four-week period in April 2020.

A recent report by the U.S. Congressional Budget Office (CBO) (Interim Economic Projections for 2020 and 2021) states that the U.S. economy is expected to begin recovering during the second half of 2020 as concerns about the COVID-19 pandemic diminish and as state and local governments ease stay-at-home orders, bans on public gatherings, and other measures.

And while the CBO doesn’t expect any major changes in the unemployment rate in 2020, expectations are it will drop to about 9.3% in 2021, with more than 10 million people still unemployed by the end of 2021. Although the CBO  expects economic conditions to improve markedly by 4Q 2021, inflation-adjusted industrial output is still expected to be about 1.6% lower than it was in 4Q 2019.

Hiring is expected to increase by Q3 2020 and job losses will drop significantly, according to the CBO report, as the degree of social distancing diminishes. However, the gains in the second half of 2020 will not offset the losses made earlier in the year. By the end of 4Q 2021, real U.S. GDP is still expected to be 1.6% lower than it was at the end of 4Q 2019.

In March and April of 2020, four laws were created to directly assist families, businesses, and state and local governments affected by the COVID-19 influenced economic downturn. To some degree, they also assisted funding of R&D performed by federal government researchers at its various R&D laboratories. These laws included:

• Coronavirus Preparedness and Response Supplemental Appropriations Act
• Families First Coronavirus Response Act
• Coronavirus Aid, Relief, and Economic Security Act (CARES)
• Paycheck Protection Program and Health Care Enhancement Act

The CARES Act provides $3.5 billion to the Health and Human Services (HHS) agency’s Biomedical Advanced R&D Authority (BARDA) for production and purchase of vaccines, therapeutics, diagnostics and small molecule active pharmaceutical ingredients. These funds could also be used to build U.S.-based next generation manufacturing facilities not currently owned by the U.S. government. BARDA could also support partnerships with private sector companies on R&D. BARDA will be investing in an array of medical countermeasures to diagnose, treat or protect against COVID-19. Another $945 million is being provided to the NIH to respond to the COVID-19 spread and $1 billion to the U.S. Centers for Disease Control and Prevention (CDC) for advanced global disease detection and emergency responses.

These laws will increase the federal deficit by $2.2 trillion in FY2020 and $0.6 trillion in FY2021. The amounts total 11% of the U.S.’s FY 2020 GDP and 3% of its FY2021 GDP and adds to the current U.S. national debt (which was already more than $20 trillion before these Acts were passed). Similar laws have and are being enacted in Europe to financially support its countries’ struggling economies. At the time of this writing, the CBO estimated that the U.S budget deficit exceeded $3 trillion in the 12 months through June 2020 as stimulus spending increased and tax revenues plunged, creating the largest annual deficit as a share of the economy since World War II.

The CBO expects that real business fixed investments (BFI) — which includes the purchase of new equipment, structures and intellectual property products including software — will decrease by about 15.8% in 2020 as demand for these goods and services lessens. Restrictions on activities to prevent the spread of the COVID-19 will reduce the supply of new investment funding available to businesses. The CBO expects that decreased spending will push BFI down at an annual rate of 3.7% in the second half of 2020. The CBO forecasts that BFI will increase by 13.4% in 2021, but will still be about 4.5% lower than it was in 4Q 2019.

It is interesting to note the view of Dr. Anthony Fauci, recognized as R&D Magazine’s (the predecessor ofR&D World) 40^th Scientist of the Year in 2005 at an awards ceremony in Chicago. Director of the National Institutes of Health’s National Institute of Allergy and Infectious Disease (NIAID), Fauci, of course, is the leading U.S. technical expert on COVID-19 and a member of the White House coronavirus task force. He believes strongly in the efficacy of some vaccines currently being evaluated in Phase III clinical trials, which may be completed by the end of 2020. If the trials are successful, the U.S. Government  could make these vaccines available by the end of 2021, at little or no cost to the general population by the. At that point, Fauci believes that the U.S. could return to a real normality, but he expects it to be a gradual process throughout 2021.

A forecast at the Federal Open Market Committee meeting on June 10, 2020 predicted U.S. GDP growth will contract by 6.5% in 2020 but rebound to a 5% growth rate in 2021 and 3.5% growth rate in 2022. Because R&D spending is tightly linked to GDP growth, that means that while R&D investments may decline in 2020, they also will rebound similarly in 2021 and 2022 to a new normality. For this to occur will naturally require the successful implementation of a COVID-19 vaccine and the absence of any COVID-19 mutation.

Of course, the COVID-19 pandemic is a global event, and the global economy is also in recession. Even the traditionally high growth Chinese economy is expected to fall from its 6.1% GDP growth seen in 2019 to just 1.2% growth in 2020. Only India is expected to see its economy expand more in 2020 by 1.9%, but following a 4.2% growth in 2019. The International Monetary Fund (IMF) expects all economies to be impacted by the COVID-19 pandemic with most advanced economies seeing -6.1% to -5.0% drops in their 2020 GDPs.

The IMF expects the COVID-19 pandemic effects to subside going into 2021 and thus forecasts most economies to bounce back to higher GDP growths (3% to 8%) than the moderate GDP growths (2% to 5%) seen in 2019.

Predictions are that East Asia and the Pacific community will grow by only 0.5%. South Asia will contract by 2.7%, Sub-Saharan Africa will similarly contract by 2.8%, and the Middle East and North Africa will contract by 4.2%. Europe and Central Asia are forecast to contract by 4.7% and Latin America by 7.2%. These downturns will reverse years of progress toward development goals and push tens of millions of people back into extreme poverty.

Affecting these nations will be pressure on weak health care systems, loss of trade and tourism, dwindling remittances, lower capital flows, and tighten financial conditions adding to increasing debt. Exporters of oil and gas or industrial commodities will be particularly hard hit due to substantially lowered oil demand and a crash in oil prices. Food supplies are expected to be adequate, but food security issues may be at risk, especially in a changing climate environment. All of these mounting weaknesses pose strong threats to R&D investments due to their fragile economies.

Endless frontier
Though it has been in the headlines for months, the COVID-19 pandemic isn’t humanity’s only problem. It arrived in conjunction with the continuing global warming crisis, global wildfire ravages, declining natural diversity, rising ocean levels, increasing global competition and other natural disasters threatening food and clean water supplies.

In late-May, a bipartisan group of lawmakers in Washington, D.C., announced the Endless Frontier Act, a bill proposing to pump more than $100 billion over the next five years into new U.S. technology endeavors at the U.S. National Science Foundation and the U.S. Commerce Dept. The bill would transform the NSF, renaming it the National Science and Technology Foundation (NSTF) to reflect the addition of new funding mechanisms that are distinct from the NSF’s existing science programs. The NSTF would fund new university centers, testbeds, fellowships and technology consortiums with a proposed annual budget of $35 billion within four years, far exceeding the NSF’s current $8.3 billion annual budget. The Commerce Dept. would also get a new multi-billion-dollar technology hub program to build R&D partnerships over the next four years in areas that are not already leading centers of innovation.

The bill is being co-sponsored by Sen. Bill Schumer (D-NY) and Sen. Todd Young (R-IN) and bipartisan House representatives from California and Wisconsin. The sponsors state that the bill responds to the technological and economic challenges presented by China and other countries and the COVID-19 pandemic. It is one of a series of bills now pending in Congress that propose large increases in U.S. federal support for science and technology.

The bill proposes an initial set of 10 technology focus areas: artificial intelligence, high-performance computing, quantum computing, robots and automation, natural disaster prevention, advanced communications, biotechnology and genomics, cybersecurity, advanced energy and materials science and exploration. The bill is being introduced on the 70^th anniversary of the creation of the NSF (1950-2020) which initially expanded the S&T developments created during World War II at the U.S. Office of Scientific R&D, headed by Dr. Vannevar Bush.

On July 20, 2020, European leaders agreed to create a $858 billion recovery fund to help rebuild European economies devastated by the COVID-19 pandemic.

This article is part of R&D World’s annual Global Funding Forecast (Executive Edition). This report has be published annually for more than six decades. To purchase the full, comprehensive report, which is 67 pages in length, please visit the 2020 Global Funding Forecast homepage.