COVID-19: what does it mean for the economy?

The impact of COVID-19 can first of all be seen on the NHS and our health services. However, as well as a health crisis the Coronavirus pandemic is also an economic crisis.   

To reduce the impact of this public health crisis, Governments around the world have sought to keep people apart, restricting the ability of people to meet, produce, buy and sell. These restrictions have quite simply meant that a large amount of existing economic activity can no longer happen, creating an unprecedented supply and demand shock.   

A huge number of businesses have had to close with hundreds of thousands not able to work. While the Government has produced unprecedented loan and pay schemes and to keep companies in business and workers on the payroll, it is unavoidable that a large number of people will become unemployed and many businesses may never reopen.   

Due to the unprecedented nature of this crisis it is not possible to predict exactly what the world will look like after. However, at this stage we can seek to identify some of the challenges that both the Government and techUK members will have to navigate in the post COVID-19 economy.   

Addressing increased unemployment

In the first week and a half since the Prime Minister announced the UK lockdown the number of people seeking welfare support through Universal Credit reached 950,000, and as the crisis goes on this number is likely to increase. It is also unlikely that all of those made unemployed will be able to return to work quickly once this crisis is over, with some businesses going under and others not returning to full strength.   

To prevent this spike in unemployment from becoming a sustained rise, Government and industry will need to focus on identifying new areas of labour demand, as well as reskilling and retraining programmes to help those who could not return to work find new employment. techUK is working with the Department for Education on this by exploring how tech can enable retraining and upskilling via virtual learning environments and platforms to ensure people have the digital tools needed for changes in how we learn and work.  

Ensuring effective retraining and people have the right skills will be of even greater importance as business and consumer demands are likely to shift as a result of the conditions of the lockdown.   

Permanent shifts in business and consumer demand   

While some businesses may snap back to how they used to operate before, the lockdown and changing habits under it will likely create demand for new products and services. For example, many may continue to work from home, while the delivery of goods and services online may see a sustained increase.   

Any permanent shift in demand will require business to adapt to meet this. We have already seen more businesses seek to increase their presence online, while also designing innovative new products that can be delivered at a distance such as exercise classes, interactive tutorials and online social events. This is a welcome shift, making some events, products and services more accessible.   

Improving and sustaining an online presence will be key not just during this crisis, but also afterwards as some businesses and individuals continue this kind of consumption. For business owners this means demand for how they used to deliver goods and services may never recover, and as a result, they will need to seek to make a permanent shift in how they run their business with a greater focus on online delivery.   

Increased corporate and consumer debt

Much of the business support on offer from the UK Government comes in the form of loans, while many individuals may take our private loans or use existing credit facilities such as overdrafts or credit cards to help make ends meet while COVID-19 suppresses economic activity. The result of this will be higher levels of both consumer and corporate debt.   

This increased debt burden could have a major impact on how the economy restarts after the impacts of COVID-19 lockdowns are eased off. Excessive or unmanageable debts could reduce the recovery of demand, potentially preventing the quick economic bounce back many Governments and economists are forecasting if consumers and businesses have to spend more money managing the debt burden.  

Managing how debt is put on, and how it will be paid off afterwards by both business and consumers will be vital to ensuring a quick recovery. Government will need to work closely with banks to identify the best measures to do this and to allow people and businesses to better manage any debts put on as a result of COVID-19.  

Managing public spending in an era of increased national and global debt

Increased debt will also be an issue for Governments, with many countries underwriting their economies through hugely increased borrowing either directly or through central banks.   

Bringing these debts back under control will be a global discussion, where Governments may face a choice between curtailing previously announced spending or seeking to manage debts over the long term by investing in growth in the near term and reducing the debt burden overtime.   

For techUK members this will mean making arguments to Government about why key investment should be retained and how they can contribute to growth after the crisis.   

The UK Government and its partners may also wish to seek to explore international coordination on debt relief or write offs in order to help increase the speed of the global recovery.  

A crisis of resilience   

COVID-19 may be remembered as a crisis of resilience and why Governments and economies were not better prepared for the known risk of a global pandemic.   

This may mean that more resilience must be built into how the economy functions with new approaches to stock and supply chain operations, which while efficient have in some cases proven to be brittle in times of crisis.  

It is unclear how this debate will go, however the importance of building resilience and spare capacity into the economy, could be one of the big seismic shifts in how modern business operates as a result of the coronavirus crisis.   

techUK will be continuing to engage with Government on how to support our members and the wider tech sector through the health, social and economic impacts of COVID-19.  

You can find the latest information and support programmes from techUK at our COVID-19 information hub.