Economy ‘will shrink by 10%’

THE East Midlands Economy will shrink by 10 per cent this year, according to KPMG’s latest quarterly economic outlook.

The figure is even worse than the 7.8 per cent fall the business consultancy predicted in June.

However, it said if a vaccine can end the pandemic by mid-2021, growth within the region could pick by 8.6 per cent next year, with the economy reaching pre-Covid-19 levels by early 2023.

UK-wide, KPMG is forecasting GDP decline of 10.3 per cent for 2020, downgraded from the 7.2 per cent predicted in June.

But even just a three-month delay in rolling out the vaccine could see UK GDP growth lose more than one per cent in 2021, it warned.

A no-deal Brexit and limited progress in eradicating the pandemic could make recovery even tougher.

The latest forecasting model suggests Derby and Ashfield will be hit hardest this year, while North Kesteven, in Lincolnshire, looks set to face the lowest impact.

Leicester and Nottingham somewhere between the two.

Marc Abrams, East Midlands senior partner at KPMG, said: “Our latest analysis highlights the scale of the challenge the East Midlands, like many parts of the UK, will face in recovering from the impact of Covid19.

“The effect the pandemic has had so far, both economically and socially, will be has been felt by many businesses and across communities, and finding ways to adapt to the new normal and work towards recovery is the main focus for many.

“So now, more than ever, is the time for us as a region to work together to give us a platform for recovery.

“The East Midlands has a great mix of businesses and making a case for investment and ensuring our voice is heard within the levelling up agenda is absolutely crucial for future growth.

“Collaboration and truly supportive and focused efforts from businesses, local government and the wider community are key to resilience and recovery.

“With vaccine research well under way, focusing on a clear action plan to restore confidence and long-term sustainable economic growth will be vital.”

KPMG warned that as the furlough scheme winds down and the economy continues to operate below capacity, unemployment could rise to more than nine per cent by the end of 2020. Unemployment is expected to average 5.9 per cent this year and 8.2 per cent in 2021.

The level is expected to fall “very gradually” because of the overall Covid-19 shock with the government having to step in and reskill workers in sectors that become obsolete.

Yael Selfin, chief economist at KPMG UK, said: “The pandemic has had a more significant impact on sectors that are more labour-intensive – and the recession will generate permanent change in some of them, meaning there will be a bigger effect on the labour market.

“The government has an important role to play, not just in continuing to provide short-term support to the economy but in readying the UK for a more productive future, including upskilling a significant part of the workforce and upgrading the UK’s telecommunications network.

“If we get this right, we could come out of this crisis with a better economy. While it feels like the worst of the Covid-induced crisis is behind us, there are still many challenges.

“There could be a second wave this year, and the timing and speed of the economic recovery will be impacted both by vaccine developments and Brexit.”