Coronavirus Effect: Rishi Sunak to the rescue again with a £350 billion package

Merely days after announcing a £30 billion stimulus to help businesses in the United Kingdom sustain and survive the menace of coronavirus, Chancellor of the Exchequer, Rishi Sunak, is back again with a larger rescue package for the industry. Yesterday, the Chancellor announced a £350 billion package to the help the British economy weather the Coronavirus pandemic that has been battering the world economy for over a month now. The package, which accounts for nearly fifteen per cent of the British GDP, is one of the largest the country has ever seen during peacetime.

When the outbreak of the virus first hit China, the economic impact was felt across the world. China, over the years, has emerged as the second-largest economy in the world riding on the strength of its vast and cheap manufacturing base. The country is the largest manufacturer of machinery parts and other semi-finished goods. There are thousands of companies in the world which have sourcing agreements with corporations in China, which makes their products cheap and globally competitive. When the outbreak hit China, the authorities put large parts of the country under lockdown. This led to many of those manufacturing units to shut down as well as their warehouses to be locked out. Thus, the supply of components to the manufacturing units across the world was stopped, leading to manufacturing losses in the respective countries.

Similarly, China is also a major importer of basic materials like mineral ores, fuels and other such basic commodities which help it run its massive manufacturing sector. Several Asian and Oceania countries which supply these commodities to China started to feel the heat when imports to China fell, leading to piling up of these commodities in their stockyards. This was the first economic impact of the pandemic that was felt by the world. Several British automobile and other manufacturing companies started to issue production warnings during the second half of January and the first half of February, stating that their production will be limited for the year on account of supply bottleneck issues. Consequently, the revenues and profits for the year will also be lower.

The second most impacted industry due to the outbreak is the air transportation industry. The rapid movement of asymptomatic infected people from one country to the other through the mode of air travel is being held responsible for much of the spread of the pandemic this time around. While in the initial stages of the outbreak air travel from China and other neighbouring countries was restricted. These countries were then the most affected by the spread of the virus. But the very few who were able to travel outside caused the second stage of the outbreak in Europe. Consequently, air travel across the world was severely restricted. As per an International Air Transport Association (IATA) report published in the first week of March 2020, the share of revenue of the countries reporting more than 100 cases is nearly 27 per cent of the global airline industry’s revenues as on 3 March 2020, which is much higher than what it was during the SARS epidemic. In the worst-case scenario, the association envisages that the European markets of Austria, France, Italy, Germany, Netherlands, Norway, Spain, Switzerland, Sweden and the United Kingdom would be the hardest hit, losing as much as 24 per cent of its passenger base, resulting in a $37.3 billion loss to the industry in the European continent and the global airline industry as a whole set to lose as much as US$113 billion in passenger revenues. The day before yesterday, major British Airline group companies- British Airways, Virgin Atlantic and Ryanair- had approached the British government for a rescue package to help them navigate through the current harrowing industry trading environment. Previously, also most of these companies had issued revenue warnings on account of fall in demand for seats and mass cancellations.

The third stage of the economic impact of the pandemic was felt when widespread infections were reported across many countries around the world. Italy became the new epicentre of the outbreak, and several other European countries started reporting exponential growth in the number of infected cases. By the start of the second half of March 2020, more than eighty countries have reported positive cases with nearly 7,900 dead. Given the gravity of the situation, most of these countries started to implement lockdowns and asked their citizens to stay indoors until at least there are some signs of reduction of the infection. The conditions of lockdown led to business activity slowdown in every country where it was implemented, leading to mass revenue losses for local businesses. This third stage of economic impact due to the pandemic is the most tormentuous for a country’s small businesses and the general public is the most affected ensuing from mass temporary unemployment.

The budget presented on 11 March 2020 had a £30 billion stimulus package which included reimbursement of sick pay to employees who cannot attend work due to self-isolation and up to  £1.2 million interruption loan for each small and medium enterprise which was facing disruptions due to the lockdown conditions. Since the day of the announcement, however, a lot of experts and industry lobby groups have voiced their opinion that the package is too small and will be grossly inadequate given the magnitude of the global economic fallout of the pandemic. It took the government seven days to reassess the situation and come out with the current rescue package.

The current rescue packages will be in the form of guarantees, for large and small businesses to be able to raise funds to deal with the demand slowdown. While the early rescue package involved large scale cash injection into small and medium businesses, this rescue package will be more indirect in its implementation. It entails the government working in conjunction with the Bank of England where the central bank will purchase short term loans issued by large companies for up to a year totalling £350 billion which would help them pay for wages and supplies while the pandemic continues to rage over the next few months.

The current situation warrants that an early solution is found to stop the spread of the pandemic. The current rescue package and all other policy measures being implemented now can protect the businesses in the country for a few months at the maximum. Should the pandemic linger on for a longer period of time, fiscal as well as monetary measures will prove to be inadequate to prevent the country from sliding into a recession. There is not much support that can be expected from the international community as well, which is also equally affected by the outbreak, with several other countries also announcing similar rescue packages to protect their local industries. It is very important at this stage that a coordinated effort is initiated by the global economic community to protect and support businesses across the world.