In current circumstances it can seem insensitive even to talk of economics and finance. It should go without saying that our thoughts are with the families affected by this horrible illness, and our thanks go to the dedicated healthcare workers supporting them
We are in the middle of the most dramatic economic downturn in modern history. In the US, we’ve seen the number of new jobless claims you would expect to see in a full business cycle compressed into four weeks. In this country, the Office of Budget Responsibility (OBR) has forecast a 35% drop in GDP for the second quarter.
This is a unique crisis in many ways – its scale, the suddenness with which it happened, the way it immediately became clear to everyone that this was to be a potent, wrenching downturn, and of course its cause: this is the first deliberate downturn, designed to stop the spread of Covid-19.
In one respect, however, it is similar to most others. When something dramatic happens we weren’t anticipating, we feel chastened by our inability to spot it in advance. Having realised belatedly that we should have seen it coming, and how important it is, we extrapolate forward and think the economy will never recover. But it does, and I don’t think this time will be any different.
There are countless imponderables at the moment, but it does look as if contagion is slowing in most of the countries involved, including the UK. This is allowing governments slowly to loosen the restrictions on travelling and meeting – restrictions which inevitably resulted in those economic closures. Even if contagion doesn’t continue to slow, it is possible that the sheer scale of the potential damage being done may cause governments to modify the current approach.
Things may start to move on, then, and relatively soon, because damage on this scale – and which is hitting the poorest families hardest – isn’t sustainable for more than weeks or months.
The support government and banks are offering won’t be taken off the table the moment things start to move back in the right direction; so we could come out of this with an extended period of policy support alongside a revival of confidence, people going back to work, and an improvement in economic activity generally.
For the Economic Growth Partnership and the City Deal, what’s really important is that we are about the long term, not just the next six months. So while we have to recognise the sensational nature of this downturn, we also have to recognise that the worst of it might not last for long: it started very abruptly, but might begin to lift relatively quickly too. The decline in GDP the OBR were forecasting for the second quarter was sensational, but the bounce back in GDP which they were predicting for the rest of the year was almost as dramatic.
This is nonetheless a terribly difficult time: the reductions in economic activity that we’ve seen are unprecedented. It’s not just about dry economic statistics; business has stopped for many companies, so these are scary times for consumers and small businesses in particular, where support is most needed. The office of the City Deal is doing its bit to make sure that businesses are aware of what support is available during the emergency, and to publicise and put people in touch with sources of such support.
But we mustn’t be deflected from our long-term focus, which is to try to deliver sustainable, equitable and commercially useful growth that can last, not just through the weeks and months of the crisis, but into the longer term.
Looking at that longer term, it’s certainly likely that some things will change as a result of what we’ve been through, but maybe not as much as people think.
One thing that will probably change for the better is the way people view what we think of us as foundational skills, the key support roles played by people who are often overlooked. They are getting at last some recognition for their hard work and care, and this appreciation may last into the recovery. We’ve always been keen to try to support the foundational economy, because we’re charged in the City Deal not just with securing growth that is commercial, but growth that is also inclusive and fairer.
The technology sector, which we had firmly in our sights to begin with, can only be strengthened by this crisis, and people are going to be focusing more, not less, on life sciences too. It’s not just about the high value added, research-intensive activities: we’re also seeing new technology like 3D printing being utilised to create and fill the gaps in the shortage of PPE that we’re all reading about. Technology always has the potential to percolate across a wide range of businesses, and is the single most important contributor to rising prosperity generally.
We have plunged headlong into a deep, dark forest, and we’re not out of it yet. But there’s no reason to believe we won’t be out before too long, and every reason to think that the longer-term outlook for the City Deal area remains bright.