While the Ulster Business Top 100 Companies 2020 shows rises in turnover and profit for our biggest businesses, many firms are going to see the true impact of lockdown and the coronavirus crisis in the next few years to come. Angela McGowan, CBI NI director, looks at the impact and what’s yet to come for our business landscape
When providing commentary on the Top 100 companies over the past few years, I have often referred to the challenging business environment in which Northern Ireland’s firms operate. That feels like a gross understatement this year, as halfway through 2020 companies are facing an unparalleled health and economic crisis, alongside efforts to deliver a workable Brexit trade agreement.
So how has this affected the economy? News of a 2.2% drop in GDP in quarter one might have been in-line with expectations, but it was still the biggest quarterly contraction since 1979. Importantly however, the data only covers January to March, including just one week of lockdown. There’s clear indication the slowdown was already in progress, with consumers already avoiding public places and spending less. While we all hope for a surge in economic activity as lockdown lifts slowly and carefully, our optimism may have to be slightly tempered.
Looking ahead, we know Covid-19 will also have a huge impact on quarter two economic data published in August, with the Bank of England estimating a 20% drop in GDP. As ever the impact will be mixed, with different sectors having very different experiences during the crisis. Food production and health sectors saw an initial surge in demand as households stockpiled necessities, while household spending on hospitality, leisure and other non-essentials plummeted. There was also a noticeable shift from physical purchases to online transactions.
Alongside changes in consumer habits, a general pick-up in consumer spending for May and June hasn’t changed the fact that overall spending is down. Research from the Bank of England showing increased deposits in banks and building societies in May, with efforts to repay consumer credit and loans also up. Businesses and consumers’ cautious approach is perhaps unexpected. Until the number of new active cases is well under control, people feel safe in public spaces and we increase capacity in public places like schools and hospitals, spending habits are unlikely to return to normal.
Given the unprecedented challenges that businesses across the globe are facing; governments in advanced economies have offered huge support to businesses. The UK Government’s support throughout lockdown has been nothing short of a lifeline for businesses and employees, and something the CBI engaged directly with government to shape. But as high streets slowly reawaken, and more and more businesses open their doors, only time will tell how deep the economic impact will be. The longer the crisis persists however, the more likely jobs and insolvencies are to rise across the country. Against this background, the survival of many firms, particularly those in hardest-hit sectors like hospitality, leisure and tourism, continues to hang in the balance.
With the IMF predicting that global growth will contract by 4.9% in 2020, and the UK economy alone expected to shrink by 10.2%, the scale of the challenge ahead is significant. That’s why the CBI has laid out an ambitious health-first recovery plan for the UK that would help secure a jobs-first, fair and sustainable economic future for all. The time for ‘build-back-better’ in all regions of the UK has arrived – with levelling-up growth, increasing connectivity and delivering sustainable infrastructure high on the agenda. This would help to unlock countless jobs and opportunities in the medium-to-long term, but the focus right now must be on actions to protect people’s livelihoods, such as extending the CBILS and kick-starting demand through targeted VAT reductions, temporarily reducing stamp duty at the lower end of the market and increasing the tax-free allowance for six months.
For Northern Ireland recovery means investing in infrastructure and people. The much-needed, and long-overdue, Investment Strategy from the Executive would give clear direction to private sector firms looking to deliver infrastructure development. We also need to accelerate our pipeline of shovel-ready projects, while keeping an eye on sustainability goals. Focusing on renewable energy, decarbonising transport and manufacturing, together with implementing an energy efficiency drive, would not only help deliver on net-zero targets but create sustainable jobs. Investing in people is not only critical for post-pandemic recovery, also but for Northern Ireland’s long-term economic success.
The onus on government and business is to help retrain and reskill people whose jobs no longer exist, taking regional needs into account. But it’s also time to address underachievement in our schools, lack of agility in our education system and reduce huge disparities in educational attainment.
Make no mistake – the UK Government’s support of business during the crisis has saved countless firms and potentially millions of jobs. But the rising number of benefit claimants, alongside redundancy fears, shows just how hugely damaging this pandemic has been for our economy. Employers and employees across the country have demonstrated amazing agility and resilience to cope with such a challenging cocktail of pressures and uncertainty. That tenacity and resilience may therefore be needed more than ever as we move into the latter half of the year.