Deloitte partners: Covid-19 economic impact is “severe”
24 March 2020: Deloitte’s latest weekly insights webinar into the Covid-19 pandemic made for difficult, if not entirely unexpected, listening, but did offer hope of a recovery in the longer term.
Ian Stewart, chief economist at Deloitte, dubbed the Coronavirus pandemic a massive shock to the economic system and one that is having an “immediate and pronounced effect on the ability of people to work”.
The UK was ‘very sensibly’ trading economic activity for public health and that means “a very sharp contraction in economic activity is in prospect”.
That contraction will, he believes, be large in terms of recession, but he hoped, short-lived in effect. Some of the strains already apparent in the travel and travel sectors were now working their way through into the financial markets which are “seeing tremendous volatility” with big moves by investors to safe assets away from equities and into cash.
Policy makers are struggling to keep up with the pace of the Coronavirus, given that the measures announced in the Budget “looked pretty proportionate and aggressive” but by the following Monday looked “quite inadequate”.
This was being tackled by two responses - attempting to calm financial markets through “cheap money, liquidity and vast amounts of capital for banks and corporates.
Speaking just before Chancellor Rishi Sunak’s most recent pronouncement about the government’s financial help for employers and employees, he said the debate was now focused on replacing people’s incomes for those unable to work and the companies unable to pay them.
Andreas Scriven, Deloitte’s UK Hospitality and Leisure Head, said that no single event was comparable to Covid-19 in terms of its severity, scale, speed and impact.
Previous ‘black swan events’ such as 9 /11, the most recent global financial crisis and other recent pandemics such as SARS and swine flu, all “lacked at least one of those key ingredients of scale, severity and speed”.
Karen Taylor, Deloitte’s Research Director at its Centre for Health Solutions, highlighted how the epicentre of the pandemic had now shifted from the Far East to Europe with new cases rising by around a third each day. New confirmed cases in Spain and Italy were found to be rising at a faster rate than at the same time point in the Chinese outbreak.
In the UK, no regions had escaped the impact of the coronavirus, while London has recorded the most confirmed cases.
“There is an inextricable link between the economy and health outcomes and that’s something that over the next few months were going to have a closer look at,” said Taylor.
She highlighted the recent tightening of guidance on isolation and social distancing and the NHS’s ramping up of its critical capacity, the reconfiguring of London hospitals to have hot and cold sites to optimise resources for the anticipated uptick in demand.
Meanwhile, Hospitality Head Andreas Scriven said the world was in “unique and unprecedented times”. “How bad is it? The answer is ‘very’”.
Travel restrictions and border closures had led to dramatic falls in revenue streams in the hospitality sector with UK hotels down by an average of 23%, while London was reeling from the biggest hit with a 42% decline. This was far better than Italy, whose hotel sector was 90% occupancy level decline, against a European cities average of 40%.
The cancellations of sporting events and the closures of pubs and restaurants had also added to the negative sectoral impact.
Despite such gloomy pronouncements, the travel, hospitality and leisure sectors had proven to be resilient and the medium to long-term growth indicators for travel were “universally positive”.
And while recovery from previous pandemics such as SARS took four to six months, “we expect that to be elongated, but the industry will bounce back”.