Wellian Weekly 13.07.2020

Lifting Lockdown

As the UK began to ease back on its lockdown restrictions, the date that seemed to attract most interest was the day on which pubs would once again open their doors. A milestone on the long road of “getting back to normal”, the day was symbolic as much as a reflection of the nation’s love of food and drink. One week on from “Super Saturday”, figures suggest the public were not knocking down the doors of their local eateries and sales were half the pre-covid levels over the opening weekend. 

As Rishi Sunak seemed to acknowledge in his Budget, a lot of work will be required to lift the economy into a sustained recovery. The measures he announced were met with a lukewarm reaction from businesses, but with so much support needed so broadly, there are challenges in targeting the money without adding time-consuming complexity. Sunak says there is more to come, which is good news for many not covered by existing schemes. 

The UK’s recovery remains fragile, although it’s hard to measure exactly how fragile. In common with many of its European neighbours, the UK’s Q2 GDP estimates are unlikely to provide a reliable gauge of the impact: estimates are subject to revision in normal circumstances, they are likely to be subject to bigger shifts in the current environment. Although countries globally are facing the same types of challenges in managing Covid-19, not all countries will be equally impacted. Some sectors are clearly more compromised than others and nations such as France and Spain, which have a stronger focus on the tourism, leisure and hospitality sectors will face more obstacles to operating than Germany’s industrial and manufacturing businesses that can maintain production levels and manage social distancing more easily. 

Analysis by Goldman Sachs has suggested that a lengthy lockdown that was closely adhered to by the public has resulted in behavioural changes that have lasted beyond lockdown i.e. some of the lockdown routine has become habitual, with a cautious consumer potentially leaving a country vulnerable to weaker economic performance. If this proves to be accurate, Italy could be among the worst affected countries, while Norway and Denmark have mostly returned to normal. For consumers, the propensity to spend hinges on both affordability and willingness. Where government spending has been directed to households, some have built up some cash reserves during lockdown. Consumer confidence has taken a bigger hit where the number of Covid-19 deaths has been high (and where the lockdown has been longer), so it may take a bit longer for some regions to bounce back, even if the number of new Covid-19 cases remains low. However, despite the cautious response from the consumer, the determination of governments to alleviate the worst of the crisis should not be underestimated.     

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