Local Economic Development in a Time of Coronavirus (2): Potential Impacts

Local Economic Development in a Time of Coronavirus (2): Potential Impacts

We have continued to speak with our local economic development clients and contacts since we circulated our initial thoughts. We have also been carefully watching the news and estimates of impacts from a wide variety of sources. There is currently very little hard data on the current economic impact of the Coronavirus crisis, and a wide range of views on the possible future economic impact.

We are not fortune-tellers or even forecasters, but we can apply our knowledge of local economic development, together with information gleaned from discussions with our contacts to set out some thoughts and scenarios on how the Coronavirus crisis might impact local economies.

The analysis set out below is an initial top-down single scenario estimate. We will continue to refine this as new information becomes available and to take account of feedback from our clients and contacts. We anticipate issuing a further note on potential scenarios in the near future.

Modelling the local economic impact

The local economic impact will be shaped by a number of factors, global, national and local.

Global factors include:

  • The spread of and recovery from Coronavirus across continents and countries, then subsequent re-infections and responses
  • Global institutions’ and national Governments’ response to and mitigation of the economic impacts
  • Recovery and the potential re-shaping of global supply chains and markets

National factors include:

  • The length of the full lockdown
  • The way in which the population is released from lockdown, and how long this takes
  • Government intervention and support for businesses, and the success of this
  • The nature and length of the longer-term recovery post lockdown
  • What the ‘new normal’ looks like after the Coronavirus crisis i.e. re-shaping of the economy

Local factors include:

  • The structure of the local economy, and its vulnerability to Coronavirus impacts
  • Local initiatives to mitigate the immediate impacts and promote recovery
  • The competitive advantages of the local economy in the ‘new normal’ national and global economies

To keep any assessment of the local economic impacts of the Coronavirus crisis as simple as possible we have considered the following variables:

  • Local economic structure, in terms of employment at 2-digit SIC codes (i.e. 99 divisions). For the purposes of presentation, these have been aggregated after analysis and we present 15 key sectors
  • Variation in the length of the three phases of the Coronavirus crisis: 1. Lockdown and release (initial estimate: 6 months) 2. Recovery (initial estimate: 6 months) 3. New normal (for further discussion)
  • Impact on sectors of the economy during each of the three phases set out above. Immediate impacts are based on thinking by OECD, CEPR, OBR and others; and the ‘new normal’ is based on assumptions about which sectors will thrive and which will not in the longer-term
  • The impact of Government intervention. We have assumed that the Coronavirus Job Retention Scheme (‘furlough’) and Government-backed lending to businesses will lead to 75% fewer job losses than would otherwise be the case during the period to the end of June

Our thoughts on impacts by sector are summarised in the figure below:

We note that some sectors will see both negative and positive impacts at a sub-sector level e.g. during lockdown many physical retailers have suffered whilst online retailers and those able to deliver locally have flourished; and during the ‘new normal’ some types of manufacturing will decline whilst others will flourish, depending on the reorganisation of supply chains. For the purpose of this modelling, we have assumed that these impacts broadly cancel each other out

It should be clear that we are making fairly heroic assumptions about the length of the phases and the impact by sectors. We welcome your thoughts on these assumptions and are keen to have dialogue to inform how these can be refined.

Our assumptions will change as we discuss them with our contacts and as new data becomes available, so our modelling will need to be updated regularly.

Indication of outputs

Here are some early examples of the outputs that we have generated from our modelling. This has been driven by top-down modelling and does not take account of intelligence gathered at the local level.  We can do this analysis for any local area in the UK, and can refine this using locally gathered data. Over the next week we will be doing some more detailed modelling for some local areas. Please let us know if you are interested in seeing some analysis for your local area.

Lockdown and release

Chart 1

Chart 2

Recovery

Chart 3

Chart 4

New Normal

Chart 5

Chart 6

 

 

Next steps

Next week we will be undertaking modelling for some local areas within the UK. Let us know if you would like us to model the impact on your local area.

Then, having thought about the nature of the impact, we will move on to consider how organisations and stakeholders can respond to the local economic impacts of the Coronavirus crisis.

Please let us know how we could develop this modelling to help you to understand the local economic impact of the Coronavirus crisis, take account of locally gathered data, and shape your local responses.