And now for some­thing dif­fer­ent … the re­cov­ery has al­ready be­gun

‘What re­ally mat­ters is how fast the economy claws its way back up to its prepan­demic level’

The Daily Telegraph - Business - - Front Page - TIM WAL­LACE

The bad news is that the UK has suf­fered a his­toric re­ces­sion of truly epic pro­por­tions. The good news is that it has al­ready been over for months, be­cause the re­ces­sion ended as quickly as it be­gan.

GDP fell in March and in April. Growth re­turned in May, so the re­cov­ery has al­ready been go­ing for longer than the re­ces­sion.

It only just ticks the box to match the usual def­i­ni­tion of a re­ces­sion, which is two con­sec­u­tive quar­ters of fall­ing GDP. If the virus had struck a few weeks later, it would all have come in the sec­ond quar­ter, lead­ing to a strange po­si­tion of one huge col­lapse but not an “of­fi­cial” re­ces­sion.

This is the short­est re­ces­sion on record. In­deed, it is the short­est pos­si­ble re­ces­sion.

So much for the tech­ni­cal­i­ties. The of­fi­cial def­i­ni­tion of a re­ces­sion is hardly the most im­por­tant chal­lenge fac­ing the UK. What re­ally mat­ters is how fast the economy claws its way back up to its pre-pan­demic level.

How soon will peo­ple re­turn to their old pat­terns of be­hav­iour, or at least equiv­a­lent lev­els of spend­ing and work­ing, even if they do it in a slightly dif­fer­ent way?

It should, in the­ory, be pos­si­ble to get back to nor­mal al­most as fast as the of­fi­cial re­stric­tions lift and in­dus­tries are al­lowed to get back to work.

Un­like a “nor­mal” busi­ness cy­cle re­ces­sion, this was caused by busi­nesses clos­ing their doors and flick­ing the switch off for rea­sons of pub­lic health. So a re­cov­ery can take place as bosses walk back in and flick the switch back on. That is why the economy had al­ready re­cov­ered a third of its lost ground by June.

Andy Hal­dane, the Bank of Eng­land’s chief econ­o­mist, said in late July that he thought half of the lost ground had been re­cov­ered.

It means a month-on-month chart of GDP looks like the be­gin­nings of the let­ter V. “So far, so V”, as Hal­dane put it.

The fur­lough scheme should help with this. If busi­nesses had been or­dered to shut down but of­fered no help, they would have had to lay off mil­lions of work­ers. In­stead the Gov­ern­ment picked up the tab, and the work­ers are still there and able to re­turn to the of­fice, fac­tory or shop im­me­di­ately.

There should be more to come. The hos­pi­tal­ity in­dus­try was only able to re­open from July 4, so was closed for the en­tire sec­ond quar­ter from April to June. The sec­tor is ripe for a re­cov­ery.

Yet its plight also il­lus­trates the dif­fi­cul­ties of get­ting back up to Fe­bru­ary’s pro­duc­tion lev­els rapidly – com­plet­ing the V-shape. If they can­not get back to their full ca­pac­ity, be­cause of so­cial dis­tanc­ing rules or cus­tomers’ cau­tion or a lack of tourists, then the “V” will fall short.

As unem­ploy­ment rises in those in­dus­tries that fail to re­bound, the risks rise that house­holds cut spend­ing and a weak­ness in one sec­tor spreads to an­other.

It is go­ing to be a very close-run thing. The po­lit­i­cal war­fare over the re­ces­sion be­gan in­stantly.

Bri­tain was the hard­est-hit ma­jor economy in the sec­ond quar­ter, mak­ing for un­favourable com­par­isons and an open goal for any op­po­si­tion politi­cian. In part this is be­cause much of the rest of Europe was hit ear­lier. That means those na­tions suf­fered worse first quar­ter num­bers than the UK, largely in March, with less of the hit fall­ing in April.

To see the over­all dam­age wrought on economies by the pan­demic it is bet­ter to look at the first half of the year. Spain has suf­fered the big­gest blow, down 22.7pc, says Ox­ford Eco­nomics, with the UK close be­hind at 22.1pc.

Italy, In­dia, Por­tu­gal, Mex­ico and France all suf­fered drops of be­tween 17pc and 19pc.

The US and Ja­pan found their economies shrank by a mere 10pc or so.

That is still painful for the UK, with its ser­vices-based economy that of­ten means deal­ing with cus­tomers face to face. Yet the pur­pose of the ex­er­cise is not to flat­ter, but to get an ac­cu­rate pic­ture.

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