Bill Jamieson: Consolation of history amid maelstrom of economic crisis

There’s nothing like a national emergency to bring out the best – and worst – in business. In Scotland, more than a dozen workers have been sacked and made homeless at the Coylumbridge Hotel near Aviemore because of the coronavirus pandemic.

EasyJet sought an emergency loan while still doling out dividends. Picture: SWNS

“This letter is to confirm.” the management wrote, “that with effect from 19 March 2020, your employment has been terminated and your services are no longer required. You are asked to vacate the hotel accommodation immediately, returning any company property.”

Virgin airline billionaire Richard Branson has “asked” staff on his Virgin Atlantic airline to take eight weeks’ unpaid leave because of the coronavirus crisis. Meanwhile easyJet chief Johan Lundgren, currently asking the government for a commercial loan to save his airline, has admitted a whopping £170 million in dividends will be paid to shareholders this weekend.

It’s hard not to despair at these reports as a national lockdown is pushing thousands of small firms to the brink – and beyond.

And yet… barely a day of this epochal crisis has passed and examples have multiplied of businesses rising to the challenge and responding with steps to help the old and isolated.

Email boxes are filling with all manner of positive suggestions and advice to help us cope. Bakeries and food shops have put on special deliveries in vans to smaller towns and villages. Pubs and restaurants drastically shorn of customers have turned to home delivery of meal orders. Supermarkets are setting aside special times for the over 70s to come in and shop. Service companies, from plumbers to repair firms, have instigated leaflet drops offering support.

Amid all the apprehension and anxiety caused by the virus and national lockdown, thousands of businesses are responding by the day with positive steps.

Economists wring their hands over what lies in store. But a recurring feature of economic setbacks is the response by way of innovation and adaptation that will help secure the survival of many thousands of firms. That is the virtue of an open market economy: the scale of this responsiveness impossible to predict and its measurement hard to track in official statistics. But it is an undoubted feature of our open society.

On Friday, Chancellor Rishi Sunak fired the third of his massive “bazookas” in the form of an employment subsidy package to help protect millions of jobs with a promise to pay 80 per cent of wages for employees not working, of up to £2,500 a month – this on top of an unprecedented £350 billion of support measures earlier last week.

Nor has the Scottish government been idle. Late last week it announced a further package of increased support for business running to some £2.2bn billion. This supersedes the £320 million package announced on 17 March.

The measures include:

 A full year’s 100 per cent non-domestic rates relief for retail, hospitality and tourism;

 £10,000 grants for small businesses in receipt of the Small Business Bonus Scheme or Rural Relief;

 £25,000 grants for hospitality, leisure and retail properties with a rateable value between £18,000 and £51,000;

 1.6 per cent relief for all properties, effectively freezing the poundage rate next year; and

 Local authorities urged to relax planning rules to allow pubs and restaurants to operate temporarily as takeaways.

The announcement was immediately welcomed by Dr Liz Cameron, chief executive of the Scottish Chambers of Commerce but with the caveat that “what we need now is to ensure Scottish businesses are able to access and receive the grants in their accounts as quickly as possible. We cannot wait days.”

In this crisis, GDP statistics are virtually meaningless. For the record, the latest compilation of independent forecasts published by the Treasury earlier this month showed an average prediction of GDP growth this year of 0.6 per cent, followed by a 1.3 per cent upturn in 2021. But already these numbers are looking out of date.

Nor are we alone. Latest forecasts from Oxford Economics now show the global economy and many major economies entering a deep recession in the first half of 2020. Over the full year, it expects a rate of global growth of zero – the second-weakest rate in almost 50 years.

Such is the scale of the challenge we now face, and the daily cascade of new isolation measures and official actions to reduce the economic impact – the cut in interest rates, the second this month to a record low of 0.1 per cent – testifies to the scale of official concern. The admission by Prime Minister Boris Johnston that the peak of the outbreak may still lie 13 weeks away added to the apprehension of firms large and small.

With the near-term outlook so challenging, it is a struggle to think beyond the next 48 hours, never mind toward the end of the year. But this we must do for our sanity.

Detailed research by Oxford Economics reveals that the bounce back in activity will be very strong once social distancing measures are relaxed, and monetary and fiscal stimulus combine with a resumption in discretionary spending. “Businesses that can weather the crisis,” it says, “should be prepared for a strong end to 2020 and start to 2021, with global growth rising as high as five per cent in annual terms.”

In the past 200 years, short recessions have typically been followed by robust recovery. Long-term impacts from natural disasters have generally only been evident for specific hazards. With the notable exception of Aids, longer-term pandemic effects also appear to have been contained.

Historically, short recessions have had short-term impacts. Contractions can harm longer-term economic health, as highlighted by the IMF’s warning of potentially persistent coronavirus impacts on activity. “But historical evidence suggests,” says Oxford Economics, “short recessions typically have only short-term impacts... For recessions lasting two quarters, GDP is typically no lower after five years than the level that would have prevailed with a continuation of pre-recession growth rates…

“There have been more than 400 ‘short recession’ episodes, in which a GDP contraction in one calendar year was followed by a recovery in growth to at least the average pace seen in the years prior to recession.” As in the past, innovation, adaptation and enterprise will help see us through.