The economic impacts of the coronavirus outbreak: what the experts are saying

While the coronavirus outbreak is first and foremost a public health emergency, the economic damage caused by the pandemic is also a huge concern. In recent weeks, think tanks and economists have been offering their thoughts on just how badly they believe the economy will be affected by Covid-19, and how long it might take to recover.

With each passing week it’s emerging that the economic impact of the coronavirus could be more severe than first thought. The International Monetary Fund (IMF) has warned that the shutdown of economic activity in the world’s major economies is likely to trigger a far more painful recession than the one following the financial crisis of 2008. The IMF now believes that the world is facing the worst economic downturn since the Great Depression of the 1930s.

In the UK, an equally gloomy prognosis has come from the Office for Budget Responsibility (OBR), the government’s fiscal watchdog. Its stark assessment of the possible economic impact of Covid-19 indicates that the UK economy could shrink by 35% and unemployment could rise to more than two million.

The regional picture

The economic impact of coronavirus is varying significantly across the country. Research by the Centre for Progressive Policy (CPP) has revealed that the decline in economic output is estimated to reach almost 50% in parts of the Midlands and the North West in the second quarter of this year. In terms of decline in Gross Value Added (GVA), Pendle in the North West is estimated to be the hardest hit local authority in the UK, followed closely by South Derbyshire and Corby in the East Midlands.

In Scotland, since the coronavirus outbreak began, the University of Strathclyde’s Fraser of Allander Institute (FAI) has been publishing regular updates about how business is being affected.

The FAI’s most recent survey of Scottish businesses  finds that, while all sectors of the Scottish economy have been severely affected by the crisis in terms of staffing levels, the accommodation and food services sector (which includes hotels, bars and restaurants) has experienced the harshest impacts, with 77% of businesses reducing staff numbers. In addition, 85% of businesses expect growth in the Scottish economy to be weak or very weak over the next 12 months.

On a more positive note, the FAI survey found that more than 95% of businesses which are planning to use the UK government’s  Coronavirus Job Retention Scheme believe it will be ‘very effective/effective’ in supporting their survival during the pandemic.

Business and employment support

The Job Retention Scheme is one of a series of measures introduced by the UK government aiming to limit the impact of the coronavirus, and ensure much of the economy is able to recover when the health crisis is over. While these actions have been widely welcomed, there have been calls for the UK to learn from more innovative measures adopted by other governments.

A report by the Policy Exchange think tank has highlighted Denmark’s wage subsidy, which is differently calibrated to the Job Retention scheme in the UK. While the Danish government is covering 75% of the salaries of employees paid on a monthly basis who would otherwise have been fired, for hourly workers the government will cover 90% of their wages, up to £3,162 per month. The Policy Exchange report notes that this assumes that workers paid by the hour won’t have the savings and support networks that generally better off salaried workers are likely to have.

Household challenges

The bigger economic picture is bad enough. But the real pain of an economic recession will be felt much closer to home. For individual households, social distancing measures aiming to contain the spread of coronavirus are already having significant impacts on spending habits. Research by the Institute of Fiscal Studies (IFS) has highlighted how these changes may be affecting people on different incomes.

The IFS suggests that richer households will be more resilient to falls in income since a considerable proportion of their spending goes on things that are currently not possible, such as eating out and holidays. But because lower-income households spend a higher share of their income on necessities, such as rent and food, the IFS suggests that they will be less resilient to any fall in income.

Exiting lockdown

In recent days, governments in France and Germany have set out plans for easing their lockdown restrictions, while Austria and Italy have already allowed some shops to open.  But the UK government has extended its lockdown to the beginning of May, and has not announced a clear exit strategy.

The uncertainty surrounding the trajectory of the coronavirus makes it exceptionally difficult to see when things might return to normal. But some analysts are becoming concerned about the harm that a prolonged lockdown might do.  A discussion paper published at the beginning of April highlighted some of these dangers:

“A long lockdown will wipe out large swathes of the economy. There will be a negative impact both financially and mentally on too many people. Already the lockdown has seen a surge in domestic violence. How to end the lockdown is key to helping restart the economy.”

The authors of the paper have put forward a strategy for ending the lockdown, suggesting that a phased traffic light approach (red, amber, green) would give everyone a clear sense of direction and address the economic, social and quality of life challenges posed by the lockdown.

After the virus

There is no clear agreement among economists on how the economy might fare once the health emergency has passed. Some economists forecast a sharp recovery, others suggest it will take two or more quarters, while still others forecast an initial boost in activity followed by another dip when the effects of unemployment and corporate bankruptcies start to filter through.

But there is a growing sense that the pandemic will have a fundamental impact on the economic and financial order. And in the UK, Paul Johnson, director of the IFS,  has suggested there will be an economic reckoning:

 “We will need a complete reappraisal of economic policy once the current economic dislocation is behind us. Tough decisions will have to be made which are likely to involve tax rises and higher debt for some time to come. The only other alternative would be another period of austerity on the spending side. That looks unlikely.”


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Test drives: around the world, driverless buses are taking to the streets

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Navya Driverless Shuttle Bus, Lyon. Photo: Navya-Technology.com

They may have a top speed of under 50 kilometres per hour, but driverless buses are moving into the fast lane of transport innovation. In recent months, cities around the world have been trialling automated bus services:

  • Driverless buses constructed by French technology firm Navya have started appearing on the roads of France, Switzerland, and Australia.
  • The “WePod”, developed by Delft Technical University has been carrying passengers to, from and around the campus of Wageningen University & Research centre in the Netherlands.

Auto-mobility

While Google have been grabbing most of the headlines to do with driverless vehicles, the French technology firm of Navya has been designing and producing autonomous cars since 2014. In October 2015, Navya launched its ARMA bus.

The ARMA does not require any driver or specific infrastructure, and has onboard sensors to avoid collisions. The electrically-powered vehicle is also environmentally friendly; its batteries can last from 5 to 13 hours, depending on the configuration and the traffic conditions.

The ARMA buses are not designed to replace mass-transit networks. With a capacity of no more than 15 passengers and speeds of no greater than 50 km per hour, the ARMA buses are designed to cover short distances, following distinct routes that avoid heavy traffic. However, they could prove ideal for locations such as airports and conference centres. Since the beginning of September, the ARMA buses have been carrying passengers on ten-minute journeys through the futuristic Confluence district of Lyon. And Navya shuttle buses are also ferrying workers and visitors around the EDF power plant in Civaux, The driverless service replaced a diesel bus, cutting waiting time down from 15 to 5 minutes. EDF estimates the time savings could result in as much as 3 million euros’ worth of extra productivity.

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Navya Driverless Shuttle Bus,EDF, Civaux. Photo: Navya-Technology.com

Going Dutch

Driverless buses called “WePods” have taken to the public roads as part of a pilot project in the Dutch province of Gelderland.

The project managers see numerous possibilities for the autonomous vehicles, such as on-demand pick-up services, filling public transport gaps in rural areas and provision of garbage collections. Ultimately, driverless buses could help solve urban parking problems and increase road capacity. And because around 70% of public transport costs are due to personnel costs, the WEpods could also save transport authorities money.

Addressing concerns

Naturally, concerns have been raised about the safety of driverless vehicles. The truth is that no type of transport is 100% safe. Even though driverless vehicles have sensors, cameras, radar and lasers to prevent collisions, accidents caused by human-driven vehicles will still happen.

However, the designers of driverless vehicles are adopting a safety-first culture.  In many of the vehicles, data is stored in the equivalent of an aircraft’s “black box”, enabling lessons to be learned from incidents taking place during the journey.

Fast forward

The trend towards driverless buses shows no sign of slowing down. In 2015, a self-driving bus took passengers on a 20-mile journey through the Chinese city of Zhengzhou. In Kista, north-west of Stockholm, members of the public were invited to test-ride driverless buses as part of the town’s April 2016 mobility week. And in August 2016, trials of automated buses took place in the Finnish capital of Helsinki.

With regard to automated transport, it seems that the stuff of science fiction is fast becoming a matter of fact.


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