Bill Jamieson: As V-shape prospect vanishes, hopes rest on Nike’s ‘swoosh’

So much for that V-shaped recovery – the alphabet-letter of choice now flattened by an unimaginable pace of collapse and record falls in business activity.

A deserted Princes Street illustrates the grim statistics. Picture: Andy Buchanan/Getty

For weeks, hopes were pinned on a sharp upward economic bounce as the peak of the pandemic passed and lockdown restrictions were eased.

But few look to a V-shaped recovery now. Other alphabet letters have taken centre-stage as ever more dramatic falls in output and despairing business surveys come to the fore.

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For example, there is growing talk of a W-shaped recovery – a series of micro-recoveries followed by fresh down waves as the coronavirus returns to strike at those who have ventured out to attempt a return to normal.

It is hard to overstate the immense damage now being inflicted on the economy – and with no coherent plan as yet as to how businesses, from manufacturing behemoths to cafés, small shops and pubs, might safely resume activity.

A snapshot UK purchasing managers index from HIS Markit last week showed private sector activity in March plunged from a reading of 36 in March to 12.9 in April – by far the lowest reading since the survey started in 1998 and far worse than most economists had predicted.

In the US, business activity has fallen by the most recorded since 2009 while unemployment has soared. The fall in the readings, says HIS economist Chris Williamson, “indicates a rate of contraction exceeding that seen at the height of the global financial crisis, with jobs being slashed at a rate far exceeding anything previously recorded by the survey.” Or, as Chris Rupkey, US economist at the Japanese MUFG (Mitsubishi UFJ Financial Group) echoed Dad’s Army’s Private Frazer in his cry of despair, “We are doomed. Bet on it.”

Last week, Scotland’s chief economic adviser, Dr Gary Gillespie, threw in the towel with the V-shaped pattern. His latest State of the Economy update warns that current restrictions are cutting Scotland’s economic output by a third and that sustained action to squash the spread of infection will have long-lasting “scarring” effects. The risk of a re-imposition of social distancing should infection numbers break upwards would turn a hoped-for V-shaped recovery into a W-shaped one.

It is a bleak assessment of what could lie in store, echoing other grim assessments in recent days from the Scottish Retail Consortium and others of the devastation being wreaked by Covid-19. Total sales in Scotland slumped by 13 per cent in March compared with a year ago, the lowest figure since January 1999. In the past two weeks of this period – ie post-lockdown – sales have plunged by 44 per cent. Many retail outlets will go under while for others it may take a long time before household finances and consumer confidence recover. Tourist, hospitality and pub venues have been devastated.

Personally, deeply worrying though the economic times are, I am not in the “We’re all doomed” camp. Time and again economies have recovered from daunting collapses in activity and employment as innovation, adaptation and enterprise, as well as government support, come to the fore.

What I suspect will happen is that while the UK government struggles over the coming weeks to draw up a credible plan for a gradual lift in the lockdown, people will take matters into their own hands.

Already thousands of businesses are finding ways round the lockdown – from click-and-collect retailing to resort to mobile vans to take goods and product direct to town and village squares. Traffic on UK roads is also starting to recover, with volume up some 40 per cent from its low at the start of the lockdown. Government will struggle to keep this break-out under control.

Among business preparation plans now being drafted, leading players in Scotland’s property industry including First Mortgage and SPC Scotland, have put together a recovery plan to re-ignite the sector post-coronavirus.

Meanwhile, the best we can hope for is not an alphabet letter shaped economic future but something slightly different. Earlier this month there was an earnest discussion among economists on the US financial website Bloomberg on the merits of the Nike sportswear swoosh as the more likely shape of our economic fortunes.

This scenario allows for businesses and spending to slowly resume as limits are eased more carefully than they were introduced. The level of economic output stays beneath the level of its pre-crisis trend well into 2021 and there’s a lack of animal spirits as people remain cautious of over-spending or taking long-distance trips, especially if they have to deal with debts.

A major frustration of small and medium-sized companies has been gaining access to the various grant and loan schemes the government announced well over month ago, with many complaints over the bureaucracy and complexity involved. For tens of thousands of firms, this is life or death support.

Now a government U-turn looks in prospect. Chancellor Rishi Sunak is reportedly set to fully underwrite loans to the UK’s smallest businesses, bending to sustained pressure from the Bank of England and MPs. He is said to be “weighing up” a decision to offer 100 per cent guarantees on loans up to £25,000 to cash-starved firms under the government’s much-criticised Coronavirus Business Interruption Loan Scheme (CBILS).

New UK Finance figures show that 16,624 of the 36,186 small business finance applications for a CBILS facility have been processed and approved. The average value of a CBILS loan stands at £171,000.

Mike Cherry, Federation of Small Businesses (FSB) National chairman, said: “These figures mark an improvement. But we need to see far more from the banks where the speed of processing applications and making money available to the smallest businesses are concerned.

“The government should up its guarantee on emergency loans with values under £30,000 from 80 per cent to 100 per cent. That, combined with the streamlined application process that should be in place for facilities of this size, should help to get more cash to the small firms that really need it.”

Let’s hope the government is listening, and gives it a “swoosh”.


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