What hope left amid the wreckage?
AS the human tragedy that is the coronavirus pandemic has escalated in the UK and many other countries, contemplation of what the economic future might hold has intensified.
It pretty much goes without saying that the challenges of getting back to some kind of normality appear truly daunting.
And for millions of people worried about family and friends, the focus is understandably very much on the here and now rather than on what will be happening in the weeks or months ahead.
The scale of the dislocation is becoming ever clearer by the day. Not that there is much escaping it in any case, with streets deserted and the shutters pulled down on so, so many businesses, hopefully for the vast majority only temporarily but for some already permanently.
In the space of only about a month, the Covid-19 coronavirus situation has gone from something that seemed a bit distant to a crisis that is taking a very heavy toll on the UK and many other countries. The daily death tolls in the UK are distressing, as the country has followed in the footsteps of Italy and Spain.
With the initial shock of the speed and scale of the lockdown in the UK having passed, many businesses and households have started trying to make sense of what the future will hold. So have the experts. There are many questions and few answers.
The pace and strength of economic recovery will have a huge bearing on living standards.
The economic indicators for March have been as you might have expected, with one slight surprise possibly being the huge extent to which activity had plummeted even before the move to full lockdown by the UK on March 23.
Figures yesterday from the Office for National Statistics showing a 0.1 per cent month-on-month fall in gross domestic product in February, before the coronavirus crisis hit the UK, confirm the economy was already weak. These figures, which might have attracted significant attention in normal times in terms of an appraisal of the post-general Election picture amid Brexit uncertainty, are of far less interest currently, given the coronavirus crisis that has unfolded in recent weeks.
What was not immediately apparent as things went from bad to worse on the Covid-19 front through March was the scale of the job losses.
Thankfully, these appear to have been mitigated to a very significant extent by UK Government moves to support 80% of the pay of furloughed employees up to £2,500 a month. It is difficult to conceive of what things would be like if this huge measure, and subsequent moves by the Government to support the incomes of the selfemployed, had not been put in place. Nevertheless, the scale of the job losses that have occurred looks somewhat alarming.
To take just one example, Chartered Institute of Procurement & Supply director Duncan Brock declared this week that job-shedding in the UK construction sector had occurred “on a frightening scale” in March as building sites shut down amid restrictions to slow the spread of coronavirus. The pace of decline of employment in this sector was the sharpest for nearly a decade.
Construction sector activity fell in March at the fastest pace since April 2009, when the UK was in the teeth of a deep recession triggered by the global financial crisis.
A separate release published last Friday by CIPS had shown combined UK services and manufacturing output tumbled in March at the fastest pace since comparable records began more than two decades ago. This means it fell in March at a faster pace than at any time during the global financial crisis and ensuing recession.
Most people will remember just how grim times were during, and in the wake of, the 2008/09 recession. Not only that but we are now more than a decade on from this and it had, even before the coronavirus crisis developed, never really felt as if the UK economy had recovered in a meaningful way from that downturn.
A survey published yesterday by the University of Strathclyde’s Fraser of Allander Institute and law firm Addleshaw Goddard signals private-sector economic activity in Scotland plummeted over the first quarter at the fastest pace since early 2009, when the UK economy was reeling from the global financial crisis.
And Scottish-based businesses signalled an even-more-precipitous drop in business volumes as they weighed the outlook for the next six months.
So, as people try to contemplate what lies ahead for the economy, their finances and living standards, it is not surprising that the trepidation is palpable.
Many households have, from a financial perspective, had such a grim time of it for more than a decade now amid the Tories’ austerity programme.
The focus is at the moment absolutely rightly on minimising the death toll, through whatever restrictions are necessary to halt the spread of the virus. The nation owes a huge debt to the National Health Service staff and other key workers who are fighting day and night to save lives.
In coming months, businesses and households will have to deal with a future that looks very different from that which the vast bulk would have anticipated as the clocks chimed in the new decade little more than three months ago.
After weeks of refusing to take on board any positive news, in terms of the huge stimulus packages put in place by governments and central banks around the world, there have been some signs of financial markets trying to seize on any slightly less-bad news, at least for a while.
News of slightly less-awful figures from the likes of Italy and Spain, in terms of coronavirus death tolls, have provided some support to stock markets.
These figures are still terrible. Behind them lies so much human misery.
However, as we await a vaccine and amid huge uncertainty over how and when any kind of normality might return, any signs that the crisis has peaked in some countries may be as good as it gets right now in terms of chinks of light amid the gloom. This week, we have also seen the end of the lockdown in the Chinese city of Wuhan.
The UK economic indicators for March are grim. And it seems inevitable, given the UK’S move to full lockdown occurred late in March, that things will get much worse before they get better in terms of economic activity. For example, in the CIPS survey, the drop in UK housebuilding activity recorded in March was relatively shallow compared with the contractions seen in commercial property construction and civil engineering. However, UK housebuilders projected a far-steeper slump going forward, as a result of moves to close construction sites.
Similarly, CIPS’S services survey unsurprisingly showed the drop in activity accelerating significantly in late March, as bars and restaurants closed.
The services survey does not cover retail but we have also seen shops selling non-essential items close their doors.
The Fraser of Allander survey also signals, while the economic numbers are bad right now, they seem certain to get much worse in the short term.
However, it is important to realise that this economic impact became inevitable as soon as the coronavirus crisis took hold in the UK, and would likely have been anticipated by UK Government and Bank of England policy-makers, as well as the devolved nations, as they moved to put in place unprecedented measures to try to mitigate the calamity.
It remains important to hope that these huge moves, and hopefully continued efforts to plug gaps to protect the incomes and livelihoods of those currently not able to receive adequate support, can at least put individuals and businesses on a stable footing to tackle the challenges ahead. Speed will be of the essence in getting money to people and businesses.
It still appears much will depend on the behaviour of businesses big and small. It remains important for businesses to do the right thing. The companies with the deepest pockets should be able to take the longest-term approach, in terms of looking through this crisis.
Many businesses will do the right things. Significant numbers of others will not. We must hope the former outnumber the latter dramatically in terms of the battle for the common good and, crucially, future living standards.
Likewise, when the worst of the crisis has passed, the UK Government must not make those most in need pay the price as it considers the public finances. What the David Cameron administration did in the wake of the global financial crisis, with the austerity drive that started in 2010, highlights the danger of those least able to afford it footing the bill after crises. In life, there is frequently a tendency for history to repeat itself. However, we must hope the current Conservative Government heeds the mistakes of the recent past.
In 2008, the extent of the financial-sector wreckage indicated that the die was cast, given the Great Depression experience. It was grimly clear what was coming.
The current situation is far more uncertain but no less daunting for that. We have not been here before in decades past.
While this to some degree presents a blank canvas in terms of the economic outlook, people would far rather this huge uncertain blankness was filled with some kind of coherent picture of the future.
As we endeavour to look beyond the coronavirus tragedy, it will be crucial to seek out glimmers of hope amid the shutdown of huge parts of the economy.
Among the positives, while costly for the public finances, is the enthusiasm with which companies have greeted the UK Government’s coronavirus job retention scheme. We must not underestimate the importance of minimising unemployment, for society and the economy, amid the huge dislocation arising from the coronavirus tragedy. Furlough is far, far preferable to job losses.
More than 95% of Scottish-based businesses surveyed by Fraser of Allander, between April 1 and 8, believe the coronavirus job retention scheme put in place by the UK Government will be “effective” or “very effective” in supporting their survival during the pandemic.
At such a grim time when it seems so crucial to retain some degree of optimism, for so many reasons, this is one of the lessbleak figures. It hopefully gives scope for some hope for the future, when the worst of the coronavirus tragedy has passed.