Businesses need to focus on productivity and skills investment to help the UK power its way out of the global recession caused by the COVID-19 pandemic.
That’s the view of Joe Nellis, professor of global economy, Cranfield University School of Management, who warned coronavirus has caused a “crisis of confidence” although recovery should follow swiftly.
In a webinar, held by accountancy firm MHA MacIntyre Hudson, he said the world economy will shrink by around 4% in 2020 – a much more severe contraction than the 2008/09 economic crisis.
But the rebound will be sharper than the recovery from the 2008 collapse.
Nellis added: “The COVID-19 crisis is one of confidence. Provided we can find a vaccine as soon as possible, and it’s effective, then confidence will rebound very quickly.”
He assured webinar viewers that it will not be a depression, which is a fall in GDP for at least two years. But he explored the risks of a ‘scarring effect’ on the global economy, which is lasting damage, such as high unemployment for the long term.
Economists views on the likelihood of this are mixed, but Nellis said he is concerned; COVID-19 has accelerated the uptake of technology and online businesses, and the High Street has been already in decline in many countries.
He questioned whether people who lose their jobs in industries already declining will find new ones that use their skills and experience.
The lack of investment in skills may become evident, he said. “Investment is the engine of growth. But the fall in investment over the last 10 years in this country has meant that productivity has grown more slowly than we would’ve expected,” Nellis added.
In the 40 years to the 2008 financial crisis UK productivity grew by around 2.4% per year, he said, but in the last 10 years UK productivity is 20% below the level it should’ve been on that trend line, and coronavirus will knock that back even further.
“My plea to all businesses and to the government is to focus on productivity. Productivity produces the output per person, and the output per person is what pays our wages.”
Nellis also gave a message of “spend, spend, spend” for the UK consumer and warned that people who hoard savings because of lower confidence in the economy and jobs market will actually make the problem worse eventually.
The industries most affected by the global recession include leisure and travel, consumer electronics, the oil and energy sector and the automotive industry.
Nellis said the complex supply chains that the automotive industry relies on makes recovery quite challenging, and the reduced demand for oil means its rebound is totally dependent on consumer demand and confidence – there may be long-term implications if the coronavirus crisis expedites moves to non-fossil fuel energy sources, he said.
Nellis said the weaker recovery of many western nations, including the USA and UK, may help “tip the balance of power” in the favour of Russia and China, which he expects to return to strong growth rapidly.