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.
It is 100 days since lockdown. This week’s monitor contains a number of publications which are reflecting on the last 3 months of impacts. Our world is a very different place to what it was at the beginning of March. Below are the main themes of the impact addressed here.
Forecasts:
There is considerable consensus in the forecasts as following a V shape, but this is based on a return of consumer spending, a trade deal and return of trade activity, and no second waves of lockdowns and a vaccine by mid next year and a return to ‘normal’ late 2021. Forecasters are predicting that the West Midlands will be hit hardest of all regions. The fall is around the 9% level, which would take about £10bn off the economy which stood at £105bn. This is due to the sectoral mix (manufacturing, retail, tourism, higher education) however predictions are also consistent that the rebound will be quickest in the West Midlands.
PMI:
After an unprecedented plummet early in the period, PMI is coming back. It is still significantly in negative territory but is showing signs of recovery. And the future prospects element is still remaining positive.
Consumer spend:
This is fluctuating and some sectors are not fairing as well as others. Food retail is growing (but not at rates high enough to offset the drop in demand from hospitality) and non-food on the whole is dropping off significantly. Online sales have rocketed, but generally, the gains do not offset the falls elsewhere.
Business Conditions:
Local businesses are facing the most significant economic shock of recent decades with domestic demand, export demand, investment in training & CAPEX and cash flow positions falling to record lows. While businesses are continuing to, on balance, experience the negative impact of COVID-19 and related lockdown measures, it is likely that businesses felt the sharpest negative impact of Coronavirus related measures in the early weeks of lockdown (end of March to mid-April).
Access to Finance:
A significant proportion of firms report having applied for, or planning to apply for, finance through the Coronavirus Business Interruption Loan Scheme or Bounce Back Loan Scheme and 1 in 4 firms report pressure to increase prices arising from finance costs, indicating high levels of debt accruing within the business community. Going forward the burden of debt is significant; nationally it is forecast to be around £100bn. Payments are now being pushed back across the board, including public sector payments, which is creating a huge credit risk in supply chains.
Long Term Recovery:
Contrary to forecasters, businesses do not expect to see a sharp recovery as lockdown measures ease with the majority predicting a fall in profitability and turnover over the next 12 months. Meanwhile, a number of significant Government support schemes and interventions are set to end over the coming months.
Employment:
While, on balance, firms are decreasing headcount, and HR1 redundancy notices are seeing a sharp rise, the Coronavirus Job Retention Scheme is likely to be playing a significant role in limiting workforce reduction. Businesses are to adapting to reduced demand by decreasing hours worked without decreasing headcount to the extent they otherwise may have done. However there is a change in business operations, with an increasing recognition that they can maintain operations on much lower numbers of employees, and the accelerated adoption of technology will drive this further. Maintaining headcount was an unusual pattern in the 2008 crash and has continued since, and this may now change as businesses can see gains from reducing the headcount. Therefore as the furlough scheme tapers down, it is likely that further redundancies will be made. There is a sense of significant struggle in the SME sector, which makes up the majority of the region’s business base and who have fallen through the cracks of support and may not be able to restart post lockdown
Impacted Sectors:
While businesses in many sectors and industries are being negatively impacted, the tourism, leisure, cultural, hospitality, aspects of retail and the manufacturing sector are notably negatively impacted. The higher education sector has not seen the impact as yet but expects this to happen early in the new academic year once enrolment is clear. There is also expected to be a big hit on business R&D investment which the region excels at. According to MakeUK manufacturing is expected to decline by 11% nationally creating a decline of between £19bn (baseline forecast) and £35bn (downside forecast) losses. The predict manufacturing investment to also be down between 1% and 9.7%. Nationally automotive is expected to have the biggest decline down by 34% a significant concern for the West Midlands. Creative industries in the West Midlands are expected to be the worst-hit of all regions. Retail in the region is still only generally operating at 40% of that at the same time last year. The sectors with the most furloughed workers (WMCA) are in the cultural economy (20.2% of employment in the sector), retail (12.5%), business and professional and financial services (18.5%).
Local lockdowns:
These are of significant concern to businesses, especially the manner in which Leicester has been closed, without warning. There is little understanding of what the lockdown might look like and how it might impact.
Mobility:
Our ability to move around has been severely curtailed, this has impacted at all levels. Affected trade, education and tourism significantly which is driving most of the economic risks and downturn. Lack of public transport has impacted on the more vulnerable in society and continues to constrain businesses opening and customers returning. The lack of national and international mobility has changed our supply chains and is impacting on attitudes towards resilience.
Skills and employment:
The rise in job losses and those claiming benefits point to the need for investment in lifelong learning, better skills development and utilisation; effective local partnerships; reducing skills mismatches and helping people take greater responsibility for their own learning and development. The potential levels of unemployment facing the region will call for significant scaling up of training at a time when providers are facing uncertainty driven by social distancing and individual choices about investment in skills. Significant changes are happening in working practices, such as homeworking and technology changes which are creating a polarisation in employment opportunity and could leave many behind. The importance of key workers in a thriving economy has also been exposed.
COVID-19 Vulnerability:
The West Midlands has high levels of vulnerability particularly in Wolverhampton, Birmingham, Bromsgrove, Wyre Forest, Stratford-on-Avon and Rugby. These areas have characteristics which make them more likely to be vulnerable to high mortality risks due to underlying health and demographic factors. Although ONS has not found conclusive evidence of occupational-related deaths, they have found in the working-age population that other factors associated with the workers in particular occupations are statistically significant. So sectors that have more men, or people from black and Asian ethnic backgrounds, are impacted most.
Wellbeing:
There has been a considerable change to people’s lives, for a prolonged time. This has had an effect on mental health and wellbeing, and the threat of job losses, access to services and reduced social network all contribute to increased vulnerability. Continued uncertainty is likely to exacerbate this. The longer-term impacts of infection are also not known, those recovering are displaying significant long term health-related issues which may persist long into the future.
The pandemic has shown how interconnected businesses, places and people are and how we all rely on these connections working efficiently. It has exposed the fragility and weakness in daily life and how there needs to be more effort put into resilience at all levels.
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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