Strong economic recovery from coronavirus pandemic predicted

A strong economic recovery following the coronavirus pandemic is likely, with conditions ripe for a quick turnaround, a report published today said.

The unusual nature of this recession could be a silver lining for recovery, the report by Oxford Economics said.

GDP has fallen because of a planned, partial economic shutdown, so in theory activity and demand should rebound as restrictions lift, particularly given fiscal and monetary support from government and the Bank of England since the crisis began.

The report, which was commissioned by chartered accountancy body ICAEW, predicts that the economy should return to growth in the second half of the year if the lockdown continues to be relaxed over the summer.

Some households and private sector companies will have saved cash during the crisis, which could lead to a spike in demand when the lockdown eases, particularly with inflation likely to reach zero in the summer, the report said.

LONDON, UNITED KINGDOM - MAY 11: Commuters travel on the Jubilee line of the underground network during the evening rush hour on May 11, 2020 in London, England. Transport for London (TFL) has announced that face masks should be worn by all passengers on the tube and bus network, with hand sanitiser points being installed at stations over the coming days. The prime minister announced the general contours of a phased exit from the current lockdown, adopted nearly two months ago in an effort curb the spread of Covid-19. (Photo by Leon Neal/Getty Images)© 2020 Getty Images LONDON, UNITED KINGDOM – MAY 11: Commuters travel on the Jubilee line of the underground network during the evening rush hour on May 11, 2020 in London, England. Transport for London (TFL) has announced that face masks should be worn by all passengers on the tube and bus network, with hand sanitiser points being installed at stations over the coming days. The prime minister announced the general contours of a phased exit from the current lockdown, adopted nearly two months ago in an effort curb the spread of Covid-19. (Photo by Leon Neal/Getty Images)

The impact of coronavirus should hopefully be a short, if very sharp, shock, the report said, with most of the damage quickly repaired. With low interest rates likely to persist, and gilt yields at historic levels, reducing the deficit should not be an urgent government priority.

Consequences for economic policy and public sentiment could endure, with post-pandemic government likely to be bigger than before the crisis.

Overall, GDP could shrink by 14 per cent in the second quarter, the report predicts. This would be the largest decline since 1921. However, unemployment will likely rise by a comparatively modest three percentage points, from four per cent at the beginning of 2020 to seven per cent in the fourth quarter, reflecting take-up of the furlough scheme designed to protect jobs.

A vendor hands a kebab to a customer at Camden Market in London on June 1, 2020 as outdoor markets reopen following an easing of the lockdown restrictions during the novel coronavirus COVID-19 pandemic. - Some non-essential stores, car dealerships and outdoor markets in Britain on June 1 were able to reopen from their COVID-19 shutdown in an easing of coronavirus lockdown measures. (Photo by DANIEL LEAL-OLIVAS / AFP) (Photo by DANIEL LEAL-OLIVAS/AFP via Getty Images)A vendor hands a kebab to a customer at Camden Market in London on June 1, 2020 as outdoor markets reopen following an easing of the lockdown restrictions during the novel coronavirus COVID-19 pandemic. – Some non-essential stores, car dealerships and outdoor markets in Britain on June 1 were able to reopen from their COVID-19 shutdown in an easing of coronavirus lockdown measures. (Photo by DANIEL LEAL-OLIVAS / AFP) (Photo by DANIEL LEAL-OLIVAS/AFP via Getty Images)

In total, the deficit is likely to reach £290bn this year, equal to 14 per cent of GDP. This would be the biggest deficit since World War Two, and would exceed the previous record of 10.2 per cent in 2009-10.

Risks to the economy are high, Oxford Economics said. Recovery could falter if lockdown is extended; if a second wave of coronavirus triggers another lockdown; if long-term economic damage is worse than expected; or if government support is withdrawn too early. A collapse of UK-EU trade talks could also hamper recovery.

Customers shop as more stalls open for business in the indoor Kirkgate market in Leeds, northern England following the easing of the lockdown restrictions during the novel coronavirus pandemic on June 1, 2020. - Schools partially reopened in England on Monday and the most vulnerable were allowed to venture outdoors, despite warnings that the world's second worst-hit country was moving too quickly out of its coronavirus lockdown. (Photo by Oli SCARFF / AFP) (Photo by OLI SCARFF/AFP via Getty Images)Customers shop as more stalls open for business in the indoor Kirkgate market in Leeds, northern England following the easing of the lockdown restrictions during the novel coronavirus pandemic on June 1, 2020. – Schools partially reopened in England on Monday and the most vulnerable were allowed to venture outdoors, despite warnings that the world’s second worst-hit country was moving too quickly out of its coronavirus lockdown. (Photo by Oli SCARFF / AFP) (Photo by OLI SCARFF/AFP via Getty Images)

The scope of coronavirus support schemes mean government borrowing stands at wartime proportions, and could increase total borrowing in 2020-21 by £173bn, or 7.5 per cent of GDP, the report said. Two-fifths of this was money for the job retention scheme.

Martin Beck, Oxford Economics lead UK economist, said: “Coronavirus and the restrictions on daily life imposed in response are inflicting a once-in-a-century downturn on the economy. But the nature of the shock and the massive support put in place by policymakers mean a strong bounce back is achievable. However, with no precedents to draw on, the outlook is clouded by multiple risks.”

Members of staff working between two-metre wide designated work stations on a car assembly line at the Vauxhall car factory during preparedness tests and redesign ahead of re-opening following the COVID-19 outbreak. Located in Ellesmere Port, Wirral, the factory opened in 1962 and currently employs around 1100 workers. It ceased production on 17 March 2020 and will only resume work upon the advice of the UK Government, which will involve stringent physical distancing measures being in place across the site. (Photo by Colin McPherson/Corbis via Getty Images)© Colin McPherson Members of staff working between two-metre wide designated work stations on a car assembly line at the Vauxhall car factory during preparedness tests and redesign ahead of re-opening following the COVID-19 outbreak. Located in Ellesmere Port, Wirral, the factory opened in 1962 and currently employs around 1100 workers. It ceased production on 17 March 2020 and will only resume work upon the advice of the UK Government, which will involve stringent physical distancing measures being in place across the site. (Photo by Colin McPherson/Corbis via Getty Images)

Michael Izza, ICAEW chief executive, said: “While this report sets out clearly the challenges facing the UK economy, particularly a fall in GDP not seen for a century, it does provide some optimism that we will be able to rebound from this short, sharp shock.

“As lockdown measures are eased, we would like to see a strategy designed to promote a sustainable economic recovery beyond the crisis. The phasing out of government schemes will have to be carefully managed to avoid a wave of redundancies and company failures, and to restore business and consumer confidence.

“Without time, space and help for businesses to recover, 2021 will be an exceptionally difficult year, especially if the problems left behind by covid-19 are compounded by a disorderly end to the EU transition period.”

Source:Cityam.com

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