WM REDI has been tasked with providing an up to date monitor of the current COVID-19 economic impacts, on a weekly basis. These reports will help regional partners to shape responses and interventions to boost the region’s resilience so that it can thrive going forward. Each week the focus of the report is based on research and evidence published that week.
Key points:
- The UK PMI figures indicate a vastly improved economic picture, similar to the improved outlook in the Eurozone. The composite purchasing managers’ index (PMI) reading from IHS Markit’s survey registered in at 47.6 in June, up from 30.0 in May and just 13.8 in April. The expected reading was 40.
- A number of Q2 reports are now being released which are showing the scale of the impact of COVID-19 and are all at similar levels. Here are the WMCA Chambers Q2 results:
- 61% of all businesses expected exports to fall in the upcoming months.
- 65% of manufacturers across the region expect their cash flow levels to fall compared to 62% of service firms.
- 28% of all firms are expecting their profits to increase in the next 12 month.
- 20% of all firms expecting their profits to stay the same in the next 12 months.
- 52% of all firms expecting their profits to fall in the next 12 months.
- The Joseph Rowntree Foundation (JRF) highlights that the levelling-up challenge has changed in three important ways since March 2020:
- Public finances have taken a huge hit.
- Geographical inequalities are at risk of becoming even larger – as the weakest local economies are amongst those hit hardest
- COVID-19 may have long- as well as short-run implications for our economic geography.
They recommend:
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- Take action now to stop the levelling-up challenge becoming even harder.
- Increase the scale of investment in basic, digital and vocational skills to match the ambitious investments in infrastructure.
- Increase the share of planned capital investment that will be invested in local public transport systems and lever this infrastructure investment to unlock opportunities for people trapped in poverty.
- Improve productivity in low-wage, low-productivity businesses and sectors by improving the quality of work, boosting in-work training and enhancing management practices.
- Work by David Bailey and Ivan Rajic highlights manufacturing may need to be cushioned from the impacts of Brexit, and this might become particularly necessary in light of the economic impact of the COVID-19 lockdown. Measures taken to support businesses during the lockdown, such as wage support and loans could be reactivated along with measures such as tax deferrals. In the longer-term, a more active policy could also be considered post-Brexit. A carefully integrated set of policies (aimed at boosting skills, innovation, and technology adoption, providing finance and so on) could be targeted at specific industrial sectors to support their long-term competitiveness and help them in recovering from the impact of COVID-19. This could be combined with a drive towards take up of industry 4.0 technologies (where other countries have gone further than the UK) and embracing environmental sustainability, for example, by paying particular attention to supporting the adoption of green technologies. More power and funding could also be given to the UK’s countries and regions, so they can set their own industrial goals (in coordination with the central government). So whatever the exact outcome of Brexit at the end of the transition period, a new industrial policy could help in both dealing with COVID-19 and Brexit challenges and embracing new opportunities such as Industry 4.0 technologies. That would require something of a ‘policy reset’ moment on the part of government when it comes to industry and industrial policy.
- General outlook: Retail, tourism and hospitality are worst affected and it still remains to be seen what the impact on the longer-term viability of businesses is. In most areas there is a push for ‘stay local, buy local’ amongst suppliers and buyers; Sales down, cash down, profits down (as echoed in Q2 reporting above). There is a significant upturn in interest in start-ups (as was the case in 2008); Insolvency is down but there is a feeling that this is the ‘calm before the storm’.
- Recovery: Manufacturing and engineering are coming back, diversification is the key and looking beyond core sectors for clients. In the automotive industry, there is a sense of waiting for an announcement from the government. In manufacturing /engineering productivity is up as there are fewer people on the shop floor and similar levels of output. A big concern is of a potential second wave and what would happen – would support be reintroduced? Rhetoric between the EU and the UK Government is now becoming a concern.
The overwhelming focus is that Businesses are ready for change and some are already innovating, we have to ensure that local skills and employment policies ensure people, especially the young can fit into this change. We also need to support and promote a return to good spending and financial resilience in businesses and households.
Before the onset of COVID-19 the West Midlands region was in a period of significant growth, based on a burgeoning construction sector; a thriving city centre international business and professional services sector which was driving high levels of business tourism; a manufacturing base becoming more productive and an automotive sector responding to the challenge of a carbon-neutral future; high exports, foreign direct investment and strong international links, and the biggest higher education cluster outside London. All powered by a young workforce. However, underlying this growth there were significant issues with inequality, poverty, youth unemployment, low skills, poor health and school performance.
COVID-19 could exacerbate our weaknesses and undermine our assets. This means we need to protect our assets and ensure they survive and then build their recovery on a resilient infrastructure, which encourages diversifying and supporting local growth, employment and supply chains. At the same time, we need to develop new ways of working internationally in a tech-based future.
The weekly monitor brings together data and intelligence from the WM REDI partnership into one single source which can be shared and utilised in planning and responding to the challenge of the virus. This is a rapid review of the issues. It is not intended to be a comprehensive assessment but rather a practical report which places emphasis on emerging issues and the best data and intelligence we have to date.
The monitor is feeding into the regional recovery planning that can help the regional economy bounce back and quickly move forward once lockdown restrictions start to be lifted.
The work is being endorsed by political and business leaders a task force of experts are being set up through WM REDI partners to better understand the impact of the lockdown and what measures will be needed to get the economy moving again.
Download and view a copy of the West Midlands Weekly Economic Monitor.
City-REDI / WM REDI have developed a resource page with all of our analysis of the impact of Coronavirus (COVID-19) on the West Midlands and the UK. It includes previous editions of the West Midlands Weekly Economic Monitor, blogs and research on the economic and social impact of COVID-19. You can view that here.
This blog was written by Rebecca Riley, Business Development Director, City-REDI.
Disclaimer:
The views expressed in this analysis post are those of the authors and not necessarily those of City-REDI or the University of Birmingham.
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