By Andrew Webb, Chief Economist at Grant Thornton in Belfast
Like many, I have been taking my first steps back towards some level of ‘normality’ over the past week or so.
A car service warning light that came on at the start of lock down was finally addressed at the start of the week thanks to car dealers re-opening and by the end of the week I had made the move from home working back to Grant Thornton’s offices.
This has provided a great opportunity to ‘sniff the air’ and practice what is referred to as the economics of walking about. Data and models are one thing but sometimes we can learn more by walking through the city centre at lunch time and paying attention to what is going on around us.
It is evident from my observations over the past week that the economy isn’t bouncing back in the V shape that was hoped for at the start of the lock down.
I decided to wait in the car dealership while my car was serviced. What was previously a busy hub of activity any other time I had been there, with phones ringing and people milling about, had neither of those things on this visit. While so many of us are still working from home, furloughed or nervous about our prospects, car purchases are not high on the agenda it seems.
A few walks through Belfast city centre later in the week, as I returned to office work, provided more insights into how the economy is faring. It was definitely not a typical Thursday or Friday in the city.
With so few office workers around, the surrounding retailers are not getting the footfall of three months ago. There was a ‘twelfth fortnight’ feel about the place. That is a worry.
The various financial packages from government were conceived to support businesses and traders through enforced closures. These supports are set to taper off and then cease as the economy reopens.
But, as the economy starts to reopen, it is increasingly clear that business as usual is some way off. Rather than the hoped for V shape shut down and bounce back, it is looking much more like the best outcome will be a ‘swoosh’ type economic path where we climb back to where we were but at a slower pace than the immediacy of a V.
While a ‘swoosh’ recovery is not ideal, it is much more desirable than two other potential paths – a W, which would see a bounce back and second decline due to a similarly devastating second wave of COVID-19, or an L shape that would see the economy decline and continue on a permanently lower path than the one we were on.
Given the likely path of the economy over the coming months, and the associated challenges, there is an increasingly evident need for ongoing support to businesses. Much of how the economy performs will be determined by how we as consumers behave.
With an estimated 280,000 people furloughed or claiming self-employed support in Northern Ireland, with two decades of local labour market progress wiped out since lock down began and with significant numbers of people taking mortgage holidays (2 million across the UK), consumer confidence is in short supply.
Consumer sentiment surveys bear the challenge out. Large proportions of respondents to questions about their intentions to go to pubs and restaurants when they reopen suggest a serious reluctance from consumers to re-engage.
If consumers are displaying this level of reluctance to engage, the questions naturally arise as to how to inspire sufficient confidence that prompts spending.
VAT reductions seem to be the idea that is gaining most traction at the moment. While those are not without merit, the surest way to shore up confidence is for people to feel secure about retaining their employment or feel confident about their prospects of a getting a new job.
This places an onus on government to actively intervene in labour market supports and job creation. Further, some very direct interventions might be required to support traders.
The idea of vouchers for all residents to spend in local shops and restaurants has been suggested, and indeed has been introduced in other places such as Malta and Vienna. In Vienna, every family is receiving 50 euros to spend in local restaurants. It might take something similar here to kick-start our recovery.
Of course, at some point there will be a totting up of the cost of responding to the COVID-19 crisis and calls to repay the bill. That debate will come in due course but for now the ‘whatever it takes’ approach that HM Treasury took when responding at the start of the crises might need to continue for some time yet with bold interventions.