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Deloitte COVID-19 Economics Monitor
The COVID-19 Economics Monitor is produced by Deloitte’s Economics and Markets team. It features a changing set of charts and tables illustrating key economic themes from the COVID-19 crisis and our forecasts for UK GDP growth over this year and the next. We also share links to important data sources and recent articles that we have found interesting and informative. We update this webpage on a weekly basis to reflect the latest developments and our evolving views. For queries about the monitor please contact my colleagues Debapratim De and Max Lambertson.
Ian Stewart, Chief Economist, Deloitte
Last updated: 1 July 2020
Deloitte’s GDP growth forecast for the UK
Sharpest quarterly contraction in more than a century
Our economic forecasts consider three different scenarios, reflecting different speeds of lockdown easing and the corresponding recovery in demand as restrictions are lifted.
In our base case forecast, which we see as the most likely scenario, we assume a gradual easing of restrictions on movement and a rebound in economic activity in the second half of this year, following a sharp squeeze to activity in the second quarter. The rebound is constrained by continued, though reducing, social distancing requirements, and caution exercised by businesses and consumers. We expect the recovery to continue throughout 2021, with activity reaching pre-pandemic levels only in the following year.
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Weak outlook, but monthly indicators show bounce from trough
Last week the IMF revised their forecast for global GDP growth and now expect a contraction of -4.9% this year, down from a previous forecast of -3.0% in April. The pandemic has impacted activity more than the IMF expected, and the Fund now forecasts a more gradual recovery. Global trade contracted by 16.2% year on year in April, almost matching the decline registered in the global financial crisis. More recent indicators show a partial recovery in activity in June. China’s purchasing manager indices rose further into expansionary territory, exceeding expectations. PMIs in the euro area, UK and US recovered further from their April lows, but still remain in contractionary territory. Retail sales exhibited similar patterns to PMIs, with sales in Germany returning to year-on-year growth but activity in other markets continuing to contract, albeit less sharply than in April.
Uneven uptick in activity in May and June
Activity in the manufacturing sector showed slight growth in June after sharp declines in April and May. Some 5,314 cars were produced in the UK in May, up from 197 in April but 95% below levels seen in the same month last year. The service sector PMI improved in June, but remains in contractionary territory. Bank deposits continued to rise sharply in May, as retail depositors increased their cash holdings out of caution or inability to spend due to lockdown restrictions. The Office for National Statistics revised its estimate for March GDP downwards to -6.9% (from -5.8% previously). UK GDP contracted by a fifth in April, driven by major downturns in construction, wholesale and retail trade, and accommodation and food services.
Business sentiment and strategies
Business confidence at record low
Our survey of British CFOs between 8th-22nd April showed that business optimism among the UK’s largest firms hit a record low. Corporates have reacted to the COVID-19 shock by adopting their most defensive strategy stance ever, with a greater focus on cost control, cash conservation and debt reduction now than at any time in the history of the survey. Data from the Bank of England highlight a rise in corporate cash holdings during the crisis, while the latest CBI Industrial Trends Survey shows that uncertainty over future demand is having the most dampening effect on business investment on record.
Public health and the lockdown
Rising new COVID-19 cases in Latin America, South Asia and US
Globally, the spread of the pandemic continues to accelerate, with the US, Brazil and India accounting for the majority of new cases. In the US, the rolling seven-day average of new cases reached 42,525 on 30 June, the highest reading to date and globally. This has been driven by significant increases in new daily cases in Arizona, Florida, Texas and California. Some affected states such as Texas and North Carolina are halting or rolling back plans to ease their lockdowns. However, new daily deaths in the US remain on a downward trend and below the UK when adjusted per million population. In the UK, the seven-day moving average of new cases fell to 931 on 30 June, down from 1,112 on 23 June and a peak of 5,622 on 14 April. Having imposed its lockdown later and now easing more gradually, the UK is registering lower rates of mobility compared to other Western European countries. A pattern appears to be emerging as European countries ease restrictions: activity around supermarkets and pharmacies recovers, workplace, transit and retail mobility remain 20-30% below pre-COVID-19 levels and park and residence mobility remain higher than pre-COVID-19.
Massive monetary and fiscal intervention
Central banks have cut rates to record-lows in both developed and emerging markets. They are also increasing their asset holdings to unprecedented levels to maintain liquidity and keep yields low. The US Federal Reserve does not expect to raise interest rates before the end of 2022 and Fed chair Jay Powell cautioned Congress against reducing levels of fiscal stimulus saying “support would be well-placed at this time”. Governments have launched sizeable fiscal packages to support incomes, jobs, households and firms. Combined with a contraction in GDP and lower tax revenue, this will mean higher fiscal deficits and public debt levels. UK public debt reached almost £2tn in May, exceeding 100% of GDP for the first time since the early 1960s. However, government borrowing costs continue to fall supported by central bank easing, high private savings, strong demand for safe assets and low inflation expectations.
Despite higher volatility, equities rally strongly in second quarter
Measures of equity market volatility remain higher than pre-COVID-19, most recently driven by concerns over new virus cases in many US states and by the uncertain outlook for profits (over 40% of S&P 500 companies have withdrawn their guidance). However, equities ended the second quarter well above their trough in March, supported by monetary and fiscal stimulus, increased numbers of retail investors with higher-than-usual savings. The oil market has also experienced some minor volatility, but remains well above the two-decade low reached in April. The equity rally and stagnant housing market has limited the fall in the net worth of asset-holding households, which has so far been less severe than in the global financial crisis.
Key sources and interesting articles
- The HMRC reports that as of 28 June 9.3m jobs have been furloughed across 1.1m employers and 2.6m claims have been made for the Self-Employment Income Support Scheme. https://www.gov.uk/government/collections/hmrc-coronavirus-covid-19-statistics
- The Office for National Statistics notes that the share of retail spending online reached a record 33.4% in May, up from 19% in January. https://blog.ons.gov.uk/2020/06/29/shopping-may-never-be-the-same-again/
- The Institute for Fiscal Studies (IFS) and the National Institute of Economic and Social Research (NIESR) held a webinar on the outlook for the UK’s public finances after the COVID-19 shock https://www.ifs.org.uk/publications/14913
- Bank of England chief economist Andy Haldane gave a speech on the impact of COVID-19 on the UK and global economies and the implications for his monetary policy decisions, noting that activity has rebounded more quickly than expected. https://www.bankofengland.co.uk/speech/2020/andy-haldane-the-second-quarter-webinar
- Johns Hopkins University's COVID-19 dashboard includes maps, trends and other COVID-19 data by country. https://coronavirus.jhu.edu/map.html
- The Financial Times produces a free COVID-19 tracker, visualising the spread of the virus by country and by region. https://ig.ft.com/coronavirus-chart/