Saving an economy under siege

Posted on March 15, 2020 · Posted in Belfast Telegraph

The global economy will almost certainly not grow this year and may go into recession as a result of coronavirus. We know from the 2008/9 financial crash that the weakest economies are likely to be hurt the most. So parts of Northern Ireland could have a tough time this year.

Brexit provides additional challenges for the whole of the UK, but especially for Northern Ireland. Businesses here have little idea what the Irish Sea border will mean in terms of customs paperwork – or even whether the trade talks with the EU will collapse and the likely impact of that on border arrangements. This limits the capacity to plan or invest, further undermining our economy.

The impact of coronavirus is unlikely to be just a one or two month difficulty. Firstly, our health service is already in crisis. If it can handle the coronavirus crisis on top of its existing crisis then a lot of people will be very surprised, as well as happy. Fundamental NHS reform, backed by the funding to enable it to happen, cannot be delayed. Not doing so is both a serious risk to the health and wellbeing of people here, but also to our economy. We cannot afford to have lots of people too ill to work. That would further damage our already weak level of productivity.

We also need to consider how our economy will be reshaped this year, either temporarily or in some cases permanently. It is difficult to see how the cruise industry will survive intact. The outbreaks of Covid 19 on both the Grand Princess and Diamond Princess illustrate how cruise liners can provide a perfect environment to spread a virus. Few people are likely to want to go on a cruise holiday this year or next – damaging a trade that was scheduled to deliver tens of thousands of visitors to Belfast this year and in following years.

Airlines are also in bad shape and the ban by President Trump on passenger flights from continental Europe to the United States will make their situation much worse. The sector will suffer much more widely than just the collapse of Flybe, which was already in serious trouble before coronavirus hit its bookings and cash flow. Korean Air has grounded 80% of its fleet and warned staff it may not survive. Other airlines – including Norwegian and South African Airways – are already struggling. We can expect some airlines to fold, others to merge and a significant reduction in flight numbers this year. It is too early to guess how long that reduction will continue.

At home, it is difficult to see Belfast City Airport replacing all the destinations and flight schedules lost with Flybe’s collapse. Many in Northern Ireland had hoped Chancellor Rishi Sunak would this week lift Air Passenger Duty on flights between Northern Ireland and Great Britain, recognising the special circumstances here in terms of our reliance on these air links. Instead he announced a review. Without that assistance we can expect a significant reduction in air connectivity for Northern Ireland.

The wider damage to the tourism sector was recognised in the Budget. He provided business rates holidays for small firms in the tourism and leisure sector – in England. Northern Ireland’s finance minister Conor Murphy has warned that copying the measure here would cost £200m, which he doesn’t have. Ironically, business rates reform in Northern Ireland was shifting the rates burden from struggling retailers to what had been a booming hotel sector. Yet hotels are now in the front line in terms of lost trade.

Restaurants are also reporting a significant reduction in trade. Derry has seen some of its restaurants and cafes close in recent weeks, following a difficult winter. Coronavirus is likely to cause many more to cease trading across Northern Ireland.

Measures announced by the Chancellor will help some businesses – deferring payment of taxes and the provision of some grants and loans can assist firms through difficult times. But if the international tourism sector fails to recover quickly – and it may not, given the damage to consumer confidence – then these moves may merely delay the collapse of some traders.

I have always been concerned about the focus on tourism in terms of Northern Ireland. It can be of value in adding to a functioning economy, but should not be relied on at its core. For Northern Ireland we need to boost our high value manufacturing and private sector services. True, the Wild Atlantic Way has been great for many parts of the Republic. But the reality is that many jobs created in the sector are badly paid, part time, seasonal and zero hours.

There was some relief in the Budget for vulnerable works in terms of the government paying statutory sick pay for the first two weeks of a person being off work, providing quicker payment of the Employment and Support Allowance and easing the rules for the self-employed to receive Universal Credit. But there are lots of people on zero hours contracts who will fall ill, be in preventative isolation, or laid off. Without savings to fall back on, they are at risk of not having the financial support they need.

The really big question is what impact the coronavirus pandemic will have on the global economy for the rest of this year and beyond that. There was already a limited move to ‘near-shoring’, bringing production back closer to markets in order to increase speed to market, provide greater production flexibility and to reduce carbon emissions. That trend may now accelerate.

We can expect people to travel less this year – holidaying nearer to home and more home working and less commuting. With Belfast just recognised as having the most congested roads of any city in the UK outside London, that would be welcome. But an economy with more home working requires good broadband, yet many parts of Northern Ireland suffer from poor broadband connectivity. Plans to roll out faster broadband will need to themselves speed-up.

It is too soon to say that Covid 19 means that life will never be the same again. But it is certainly making businesses, workers and consumers pause for reflection about working and travelling behaviour. Some things will now be different.