New data and economic forecasts paint a dire picture - prepare for the worst economic downturn since the Great Depression. More countries are gradually lifting restrictions and some 86 candidate vaccines are being developed around the world. But we are still far from a clear exit strategy.
A bleak picture is emerging of how much the business landscape has deteriorated since the UK entered lockdown.
In the fortnight to April 5, an ONS survey reveals that one-quarter of all businesses have temporarily closed. Conditions for businesses that remain open are tough. Most report that turnover has dropped, with 38% experiencing a substantial fall in sales.
Firms are unable to shield staff and, on average, have already furloughed over one-fifth of their workforce. Over 40% plan to cut staffing levels in the short term and 29% are reducing hours.
Economic forecasting has resembled a race to the bottom, with the latest projections getting progressively worse. Last week was the Office for Budget Responsibility's turn. Assuming a three-month lockdown, the UK economy would shrink by 35% q/q in Q2 2020 and unemployment would soar to 10%.
The OBR's "reference scenario" has set economists' pulses racing. One think-tank, the Centre for Progressive Policy, has applied the same methodology to the 382 Local Government Districts (LGDs).
While national economic output could shrink by 35% in Q2, the same scenario could see falls ranging from 18% (Orkneys) to 49% (Pendle, North West) across the UK. The North West and Midlands occupy nine of the top 10 most affected LGDs. Mid-Ulster, Northern Ireland's manufacturing and construction heartland, is the highest ranking in NI (7th) with an expected 45% q/q decline in Q2.
The IMF also issued its new forecast, describing the current situation as a crisis like no other in three critical ways:
- First, the size of the shock - the output loss will dwarf the financial crisis.
- Second, severe uncertainty - the duration and intensity of the shock.
- Third, the different role for policy - calibrating a response to these circumstances is hugely challenging. With those caveats came a forecast of a contraction in global output of 3% this year, blowing past the minus 0.1% estimated for 2009 at the worst of the financial crisis.
No major developed economy is set to escape the clutches of a sharp contraction, says the IMF.
The UK is set to see a decline of 6.5%, while the euro area (-7.5%) and the US (-6.1%) are similar.
There was better news in the forecast for 2021 with uniform expansions expected. But that depends on the pandemic fading in the second half of 2020. With so much uncertainty, considering different scenarios really matters.
In the event of a second wave in 2021, the IMF envisages a much sharper decline in activity.