At least let’s get recovery right
WE MAY not have coped with the downturn very well, so now we have to manage the upturn better. The past week has seen the official forecasts catch up with the reality that the economic downswing from this health crisis will be massive – as much as 10 per cent for the year as a whole.
The IMF believes the developed world will recover part of the way next year, but will still be down at the end of 2021 from where it was at the beginning of 2020.
If these projections are anywhere near right, this hit will end up very broadly the same as the one the world economy took after the financial crash of 2008. We are going down further and faster than we did then but we will clamber back faster too.
But that is an aggregate. Some sectors will be much harder hit now than then and struggle to recover, while others will do just fine.
You can see that already. Online retailers are expanding, but the high streets are shattered.
Many food businesses are running much as normal because we still have to eat, but milk sales have plunged (we’ve stopped buying those fancy coffees) and the cut flower trade is terrible.
So what shape will the recovery take? We have some very early signs from other countries and they are not encouraging.
In Wuhan, the factories are reopening, and so manufacturing is getting going again. But anecdotal evidence suggests that people are fearful of going out if they don’t need to.
The restaurants are free to reopen, but people don’t want to go to them – so they stay shut.
We had a glimpse of this reluctance in Austria too, where smaller shops and DIY outlets were shunned after they opened last week. People are frightened, and who can blame them?
There are other parts of the economy that can scramble through this year but will face huge problems next.
Universities can teach and examine online this summer, but will see a shortfall of applicants in the autumn.
Foreign students don’t know whether they will be able to travel, and there may be reluctance to start a course from home students too.
Every unfilled undergraduate place is business lost for three or four years.
So what’s to be done? Governments will pump in money and central banks will print the stuff. There will be gaps in their programmes, because you cannot compensate for every loss. There will also be a reckoning in the form of higher taxes and lower returns for savers in the years to come.
If you look at the big numbers the UK Government is doing more than most. But getting back to work is not just about pumping money into the economy. It is about creating confidence that we can safely get back to work – and get back to the rest of our normal lives.
People are on the whole being astoundingly resilient, abiding by the guidelines on social distancing and – as we have all experienced – showing those small courtesies to each other that make life worthwhile.
Companies have been resilient too, getting projects through at lightning speed (look at Waitrose’s online investment, reported on page 114) and reorganising supply chains.
In the main, not always, they have sought to protect their workers. There will certainly be lessons learnt that will make for more efficient business practice in the future, though I worry that there will be an investment backlog to catch up.
But without confidence, we won’t get things going.
Confidence in the financial markets seems to be creeping back, with shares in the UK and elsewhere having another solid week.
But markets are fickle and we cannot assume that this confidence will not give way again to panic, as it did at the end of February and in early March.
In any case, this is not just about money. It is about competence and common sense.
So here is a plea to the Government.
When you ease up restrictions look at what is working in other countries and what is not. Learn from that.
Be practical. Explain what you are doing and why. And then the rest of us can get things shifting again.
Government must explain what it’s doing ...and why