Think of a letter...
29 July 2020
Although economists generally focus on figures, they currently seem preoccupied with letters. They’re trying to forecast the shape of the recovery.
As mentioned before on this blog, some suggest a V-shape with a sharp bounce back, while others predict a W double-dip recession caused by a second wave of the virus.
Most pessimistic of all is the L, where the economy bumps along the bottom indefinitely.
Pre Covid-19 levels
In a recent report, forecasters at the EY Item Club suggest that the overall UK economy might not be restored to pre Covid-19 levels until late 2024.
It points out downside risks including a reluctance of consumers to engage in previous levels of activity, and the possibility of no Brexit trade deal being agreed between the EU and the UK. The report says this makes business forecasting extremely difficult. Indeed.
It is clear that markets like hospitality and catering have been hit hard by the lockdown and will continue to be so for some time. However, it is also very important to remember that different parts of the economy will not be affected in the same way.
Build, build, build
In fact, construction appears to be better placed following the prime minister’s commitment to “build, build, build” as the way forward.
Some of the dynamics in play are discussed in the London Crane Survey, which is prepared annually by Deloitte and reflects the old adage that the number of cranes on the capital's skyline indicates wider construction trends.
It points out that demand for office space, for example, will be affected if more people work from home in future. Currently, 27 million sq ft of office space is either under way or has planning permission but is yet to start. The report authors say, “This is a 5% reduction survey on survey and a 17% decrease over the last two years.”
More sophisticated designs
However, the report also suggests that buildings will become more sophisticated with systems for air filtration, ventilation and other design features to prevent the spread of disease. Perhaps these will need to be retro-fitted, too.
Greener building practices and materials will also be required, according to government statements. Contractors who can meet these demands will win more business, creating hire demand and a stronger recovery for this sector.
Recently a senior executive from a national hire company told me, “It’s a really interesting time in the market. Of course there have been fewer project starts this year with many put on hold, but there are still some very, very big developments going ahead, as well as large long-term infrastructure contracts.
Good news for hirers
“HS2 is a ten-year £100 billion-plus project which is providing a lot of hire business. And at other sites, managers are specifying twice, and in some cases three times the number of welfare and accommodation units for safe social distancing. That market is mad busy for us, as is power generation.”
He continued, “Another factor is that, with contractors having to allow fewer people on a site at any one time, project times could be extended. That means plant and equipment might be needed on site for longer periods - which should be good news for hirers.”
Saxophones and bathtubs
Returning to the initial theme of the shape the recovery might take, you do wonder if certain ideas are rather contrived. Following the 2008 financial crisis, some of the more outlandish suggestions were a saxophone configuration and, even, a bathtub.
A LUV shape was also put forward, comprising an L-shaped recovery for western Europe, a U (indicating a very gradual rise) for North America and a V for Brazil, Russia, India, China and other then emerging economies.
And perhaps that’s the real point. Different descriptions will reflect individual territories and markets. The recovery graph for, say, a small builder will not be the same as that for a music festival organiser.
Trust your own judgement
The key for hirers and suppliers is to identify markets where there is growth and to steer towards them. That means maintaining close links with customers to find out what’s in demand - and what’s not.
So rather than relying on letters and images to shape your future outlook, it is better just to trust your own judgement.
(Image: Michael Schwarzenberger, Pixabay)
