Are we set to expect a Great Rebound Part 2?
Back in June 2020, Andy Haldane, the chief economist of the Bank of England (BoE), gave a speech which indicated the global economy is rebounding faster than early projections suggested. That was before the pandemic second wave took hold. Now it is 2021 and we are back in Lockdown – but this time there is a vaccination programme running bringing hope that further interventions will not be necessary.
Can the economy rebound again?
The considerable uncertainty around jobs still persists and an expected surge in unemployment once the government support for furlough schemes tapers off is very much on the cards. I have not heard rumbles that Furlough will continue passed March but if the Lockdown on major parts of our economy is not lifted then the government support should remain in place. What reopening will look like does very much depend on the public’s sense of their own job and financial security. High anxiety or widespread job losses will elevate the risk of households cutting back on expenditure en masse.
As Haldane quoted “John Maynard Keynes described this dynamic in the 1930s as the “paradox of thrift”. A paradox because prudent decisions by households, given the risks they face, have the perverse collective consequence of increasing risks to the economy and those same individuals.”
However, what was seen back in August was the opposite - an increase in consumer spending. Retail sales in July jumped above pre-pandemic levels after the first full month since the reopening of non-essential shops. In a sign of pent-up demand being unleashed what couldn’t be tracked was how long this exuberance would have continued as we entered tiering and further lockdown only 3 months later.
Is the legacy a further divided society?
So should firms actually set the expectation that demand for goods and services could rise? This scenario may deter managers from instituting redundancies due to the costs associated with rehiring. As a result will household incomes, and therefore demand levels, be preserved? Or will this dichotomy in behaviour shed light on what is said to become an even more divided society with those that have saved or gained during lockdown and those who have lost out. How disproportionate this split will be may define if we bounce or stay in a long drawn-out recession.
Business need a plan to plan.
What we do know is that much like reopening schools, the government does need to provide a plan for how (if they can’t yet say when) lockdown restrictions will be lifted so that business have the opportunity to plan and prepare this time, giving them the best chance to survive and ideally prosper in 2021 and beyond.
For how to survive in a recession see article here or how to scenario plan see article here. To help with either of these understand the benefits of bringing in interim management to advise your leadership team click here.
For more information on corporate recovery, turnaround or Interim Management please contact Simon at simon.jones@fortitudelondon.com
