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Looking for the Silver Lining in the Bouncy Covid-19 Ride: Afterpay Under Action

  • March 24, 2020 02:54 PM AEDT
  • Team Kalkine
Looking for the Silver Lining in the Bouncy Covid-19 Ride: Afterpay Under Action

Now it’s not a hidden fact, how the Covid-19 pandemic has led to trillions of dollars’ worth of global economic losses. The governments of even the most powerful countries of the world are currently struggling to deal with both the economic and the healthcare crisis inflicted upon them. The Office of Budget Responsibility (OBR), conducted research, to estimate the total economic impact on the country of this disaster. With an assumption of the fact that the entire economy would be under lockdown for a period of three months, followed by partial lifting off the restrictions within the country, it was reported that the total Gross Domestic Product in the country could go down by approximately 35 per cent, while the Unemployment would rise up to approximately 10 per cent, which could be a potential increase of 2 million unemployed people, putting more pressure on the state, to deliver and support the citizens of the country, especially the ones living off on their daily wage earnings. The OBR’s report, however, also mentioned that there could be a quick bounce back to the ailing economy if the government took the right steps. Another forecast that was highlighted in the report was the fact that public sector’s net borrowing might increase by around £218 billion during the financial year 2020-21 in comparison to the OBR’s March Budget forecast, which was to reach £273 billion or 14 per cent of the total GDP. The OBR reported that if this forecast came up to be true, then this would be the largest one-year deficit from the time of World War II. The OBR presented some other case scenarios as prepared by consulting firms, which included KPMG’s base case GDP growth forecast to go down by 2.6 per cent, while the downside forecast of the growth was a negative 5.4 per cent. Morgan Stanley’s forecast was reported to be at negative GDP growth of approximately 5.1 per cent.

Gold MTF non-AMP

Status of Business Closures in the Country

The global businesses have taken a big hit by Covid-19, especially the United Kingdom, with a number of businesses being forced to close down or being put under administration during this period. The Office for National Statistics (ONS) conducted a BICS (Business Impact Survey), in view of the rapid spread of coronavirus. This survey was conducted in two parts, and the 25 per cent of all the respondents in the second phase of the survey said that they had closed down their businesses temporarily, while approximately 0.4 per cent business representatives responded, with the statement they had to close down their businesses permanently, due to the extremely poor business environment during this phase. The British Chamber of Commerce’s CBIT or Covid Business Impact Tracker displayed that approximately 66 per cent of the company’s around the country had furloughed their employees, who were left to access the government’s wage and furlough schemes, as announced during the month of March by Chancellor of the Exchequer Mr Rishi Sunak. The BCC’s CBIT also highlighted the fact that as per their tracker, 59 per cent of all businesses in the UK have less than three months’ worth of cash, while CBILS announced by the government, is not really helping these businesses due to the amount of time it is taking for the businesses to access these schemes.

The output of the CBIT, the ONS’ survey and the Office for Budget Responsibility’s forecast should be looked together. The macro view of all these three studies together explains the fact that even though there is an assumption of a “V” shaped recovery within the economy, the data points to the fact that it could actually be a long road to a bounce back, and that too, if the restrictions are lifted within three months, which, currently doesn’t seem like possible scenario. The data points from a study conducted by the Enterprise Research Centre (ERC) indicate to the fact that when the restrictions started in the country during the month of March, more number of dissolution of businesses happened, as compared to incorporations, as well as the fact that the dissolutions in March 2020, were higher as compared to March 2019, while incorporations of businesses in March 2020, were lower as compared to March 2019. This is a clear indicator of the poor business environment in the UK, and how hard it would be to bounce back from this.

Region wise dissolutions and incorporations in the UK for the Months of March 2019 and March 2020

Dissolutions

Mar-19

Mar-20

Difference

% Difference

North East

653

1103

450

68.91%

North West

3094

5534

2440

78.86%

Yorkshire

1831

3003

1172

64.01%

East Midlands

1725

2528

803

46.55%

West Midlands

2447

5132

2685

109.73%

East of England

2458

4205

1747

71.07%

London

9489

15920

6431

67.77%

South East

3718

6075

2357

63.39%

South West

1734

2849

1115

64.30%

Northern Ireland

326

576

250

76.69%

Scotland

1835

2214

379

20.65%

Wales

982

2359

1377

140.22%

UK

30292

51498

21206

170.01%

Incorporations

Mar-19

Mar-20

Difference

% Difference

North East

1510

1219

-291

-19.27%

North West

6396

4764

-1632

-25.52%

Yorkshire

3510

2946

-564

-16.07%

East Midlands

3930

2665

-1265

-32.19%

West Midlands

6369

4342

-2027

-31.83%

East of England

5655

3770

-1885

-33.33%

London

18936

16210

-2726

-14.40%

South East

7421

5892

-1529

-20.60%

South West

3757

2897

-860

-22.89%

Northern Ireland

738

600

-138

-18.70%

Scotland

3161

2327

-834

-26.38%

Wales

1812

1293

-519

-28.64%

UK

63195

48925

-14270

-22.58%

(Data Source: Enterprise research Centre)

(Data Source: Enterprise research Centre)

The above graph clearly shows that as compared to new companies incorporated, dissolution of the older ones have been almost equivalent, during the month of March, when the lockdown restrictions first were started being put in place, as the country faced the true nature of the devil that has been covid-19. The deeper look into this data also shows the fact that After 23rd March 2020, when the lockdown first began, the incorporations have been even lower as compared to dissolutions, meaning that businesses are closing at a greater pace.

An outlook for the future business scenario

The details provided here maybe an early indicator of COVID-19's immediate impact on UK business dynamism, but given the apparent problems with the dissolution data we figure out significant changes in the number of companies being dissolved in March 2020 compared to March 2019, with the West Midlands and Wales experiencing the highest relative changes. There are also several industries that have been more seriously impacted, including the Transportation and warehousing sectors, Industrial, Engineering process related industries, and Wholesale and Retail companies and other businesses that have been active since just the last two year, experiencing a sharp increase in dissolutions. This indicates to the fact that if the lockdown keeps on extending, the business environment will get even tougher, and the forecasted “V” shaped recovery, might take a little longer than expected, and could become either a “U” shaped recovery or even an “L” shaped industry scenario, with a case of a severe recession that has never been seen before. And even though the government is taking all the possible steps to mitigate both the economic and healthcare-related impact, it is yet to be seen if those steps can actually make a material difference in the overall situation of the United Kingdom.

 

 


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