Post-virus everything is going to change. That’s the dominant view of national and international media. But how exactly do they see the future? This regular digest section gives some of their answers and views/Edited by George Hamilton
In this edition (June 3)
After coronavirus: chilly dawning of economic reality in new world of work
As consequences of the pandemic grow clearer, prospects of a quick recovery are receding
UK manufacturers planning tens of thousands of redundancies
Almost half of firms surveyed by lobby group are considering cutting jobs
Capitalism must adapt and evolve if we are to end this crisis
Yet another global business leader – this time from Unilever – calling for major changes in capitalism, framing it as the way to end the pandemic, and prevent another happening again.
Britain’s Brexiters still do not understand Europe
FT columnist Philip Stephens, in a stinging article, says the underlying assumption remains that the UK is somehow ‘owed’ privileged access
US-China trade war slashes US$1.7 trillion from US companies’ market caps
Companies with exposure to China more affected as a slowdown in the Chinese economy reduces the return on investment
Car finance bubble reaches coronavirus bursting point
The pandemic could be an upset big enough to bring Britain’s £75bn car financing business crashing down
Drone deliveries soar in rural Scotland during coronavirus outbreak
Isle of Mull among areas trialling use of unmanned aircraft to distribute supplies
Banking group, RBS has announced that all but 400 of the 50,000 staff working from home would continue to until at least the end of September. Roughly 10,000 others are already manning branches and offices.
Office districts would lose as many as 30 per cent of workers until a vaccine was made or herd immunity declared, another senior banker who asked not to be named said, which means food outlets serving at lunchtime will suffer.
With fewer sales, jobs will be lost through the supply chain. It’s already happening: between them, British Airways and Ryanair are cutting 15,000 jobs. As fewer planes will be flying, fewer engines will need servicing, so Rolls-Royce is cutting 9,000 posts.
“The recovery is going to be very slow,” the banker said. “Once the furlough scheme comes to an end, [companies] are planning to lay off thousands of people.”
The consequences are dawning on government officials, where planning in the early stages was all about “bridging” the chasm of a V-shaped recovery. The language is now very different. At best, they think the recovery will be a Nike swoosh, with a slow upswing.
Richard Pennycook, the former Co-operative Group chief and chairman of the British Retail Consortium until last week, said: “It will be a hard slog. 2020 is a write-off, 2021 will be a hard year and there will be a slow recovery the following year.” The forced shift to online shopping, which accounted for 70 per cent of all non-food retail sales last month according to the BRC, will accelerate the existing trend.
“A quarter to a third of non-food retail space could come out of the market in six months, not five years [as previously projected]. That would mean about 150,000 jobs gone,” Mr Pennycook said.
What is being described is an economy in rapid transition. As office districts turn ghostly, local shops will buzz with new footfall. As physical retailers close, warehousing and distribution will surge. But it takes longer to build new capacity than it does to shut down the old.
One of the more unexpected casualties of the crisis has been globalisation.
Global supply chains have been falling apart. Seamus Nevin, chief economist at Make UK, the industry body, said: “One engineer we speak to that makes electrical components for a larger engineer has had to stop production because it can’t get hold of rubber coating from France because the factory is shut. What we’re seeing is the complexity of integrated supply chains hitting home.”
Beata Javorcik, chief economist at the European Bank for Reconstruction and Development, said: “There is lots of talk about shortening supply chains, building resilience, reshoring. Multinationals are looking to diversify.
“The dial is moving from cost optimisation to resilience, building in redundancy — having suppliers in multiple geographies. We are likely to experience other shocks, from climate change or protectionism. This will result in higher costs that push up inflation after this crisis everywhere.”
Again, it is already happening. One chief operations officer said that he was moving what sourcing he could back to the UK “to take away that dependency on other countries”.
There is a happier postscript. Britain is well-positioned for the digital-led future, now that we are all tech adopters.
Raghuram Rajan, a former chief economist at the IMF and previous governor of the Reserve Bank of India, said the economic pause may let people take a breath and consider other looming risks. “Will we start taking other potential threats, like climate change, more seriously and start preparing?” The Times May 29
Britain’s manufacturers are poised to make tens of thousands of workers redundant after a worse-than-expected slump in orders, prompted by the pandemic that has left many firms struggling to survive.
A survey by the manufacturers’ lobby group, Make UK, found that 25% of companies are already drawing up plans to cut jobs in the next six months. A further 45% say they are considering redundancies.
Only 30% said they expect to emerge from the coronavirus pandemic with all their staff on the payroll.
The worst-hit firms, which account for more than a quarter of those planning to make redundancies, expect to cut more than half their workforce while another 30% said they would need to lose a quarter of their staff over the next six months.
Orders for cars, heavy machinery and manufactured equipment has declined sharply in recent weeks despite an easing of the lockdown to combat the Covid-19 outbreak in parts of Europe and the US.
The Make UK chief executive, Stephen Phipson, said: “There is no disguising the fact these figures make for awful reading with the impact on jobs and livelihoods across the UK.”
The Office for National Statistics said the hospitality, retail and leisure industries had already suffered a steep decline in job vacancies, with low-income workers the worst affected.
The number of vacancies on offer had more than halved since severe restrictions were imposed in March, with even bigger drops in the retail and hospitality sectors.
Official monthly figures for vacancies are only available up until April but the ONS said that by using data from the online job search engine Adzuna it was able to add the current state of employment opportunities to its list of Covid-19 tracking indicators.
Adzuna said its breakdown of the vacancy data showed job vacancies in hospitality and catering had decreased by 86% since the start of the crisis, with retail down by 70%.
While the gradual reopening of construction sites and non-essential shops had led to some industries stabilising, Adzuna said recovery was likely to be slow as employers re-entered the market cautiously. A decline in job vacancies across key sectors such as hospitality had disproportionately affected lower-income workers, with vacancies down by 64% for jobs paying between £15,000 and £24,999. Guardian May 29
Alan Jope is CEO of the British-Dutch multinational consumer goods company, Unilever: The devastating and rapid global impact of Covid-19 – the loss of life, and the disruption to daily lives, livelihoods and economies – has demonstrated just how fragile and unsustainable our modern world has become. If we are to emerge from this crisis stronger and more resilient, we cannot possibly return to business as usual.
To achieve economic recovery, a similar multi-stakeholder approach with a global perspective is needed. It is only by adapting and evolving capitalism – so that it works to benefit not just shareholders, but all stakeholders – that businesses, economies and society can truly recover from this, and can do so in way that creates foundations strong enough to weather future crises.
Even before the pandemic, Unilever had long advocated for this form of stakeholder capitalism. For businesses, this means continuing to recognise the benefits that capitalism brings – the competition, the value creation and the innovation – without sacrificing the future for the present by putting shareholder return above all else. It also means shareholders recognising that it is in their own best interest to have business operate this way.
For example, since 2017 our partnership with GAVI, the Vaccine Alliance, has helped reduce under-five mortality in India through a simple but effective scheme that encourages more widespread handwashing with soap and promotes essential childhood immunisation.
Having already helped to protect the lives of more than 760 million children, GAVI will now play a vital role in ending this pandemic, by ensuring that when coronavirus vaccines are developed, billions of doses of vaccine reach everyone that needs one.
This immense undertaking – the single largest vaccine deployment in history – will need support from across every sector. It is the only way to end the pandemic.
Unfortunately, many businesses, big and small, will not survive this crisis. But businesses that adopt a multi-stakeholder business model and a collaborative mindset are likely to gain an additional sense of purpose which will only make them stronger. Those that do survive, will do well to not just think about their recovery, but also our collective reinvention.
It will take a multi-stakeholder approach to end this crisis and it will take a multi-stakeholder approach to prevent it from happening again. Daily Telegraph May 28
Philip Stephens: Why are the Europeans being so beastly? Why won’t they agree to the post-Brexit trade deal Britain wants? Worse, why doesn’t Brussels understand that it is in the EU’s own interest to sign up to Boris Johnson’s proposals? As the UK prime minister never tires of saying, Britain buys lots of German cars, Italian prosecco and French cheese.
Britain’s government is under siege. Its handling of Covid-19 has been pretty much a shambles, with death rates among the highest of rich nations. The economy is in deep recession. Breaches of lockdown rules by Dominic Cummings, a close prime ministerial aide, have scorched public trust in the government. Mr Johnson has faced a Tory rebellion. He looks lost. Never mind, whatever the fires at home he will “take back control” from Brussels.
There is a snag. After jilting its long-term partners, Mr Johnson’s government still struggles to understand why it cannot hold on to its matrimonial privileges.
The present deadlock with the EU is easily summarised. The EU wants a broad economic and trade agreement that will preserve close ties; Britain insists on a basic zero-tariff, zero-quota trade pact, plus a string of à la carte arrangements in industries including transport, energy, pharmaceuticals and financial and other services. The EU wants long-term access to Britain’s fishing grounds; Mr Johnson is offering only an annual deal.
There is nothing eccentric about the EU’s pitch. To the contrary, it matches precisely the joint political statement to which both sides signed up last autumn.
The impasse has arisen because Mr Johnson has changed his mind. Invoking a novel theory of international relations, he says that winning a British election bestows the right to tear up agreements he has made with foreign partners. The level playing-field provisions — implying shared employment and environmental standards, norms and common rules for state aid, and anything implying a say for the European Court of Justice — must be jettisoned.
Never mind that this goes back on Britain’s word. Without a hint of irony, David Frost, Britain’s Brexit negotiator, is now telling Mr Barnier that the EU can take Mr Johnson on trust. This, as the prime minister also obfuscates about the fate of a separate, legally-binding commitment on the operation of the border between Northern Ireland and the Irish Republic.
Unsurprisingly, the EU27 considers it has a better sense of its own interests than does Britain. From its perspective, Mr Frost is proposing a deal that would collect together all the bits Britain likes from EU agreements with, or offers to, nations as diverse as Canada, Norway, South Korea and Mexico. This unique package would sit alongside a series of arrangements specifically tailored to Britain’s interests in the services sector.
The Brexiters have never properly grasped that, for its erstwhile partners, the EU is as much a political as an economic enterprise. European integration is an investment in shared security, stability and democratic values, as well as a source of prosperity. These are not things they can give away in a trade deal with Britain.
The upshot is that the EU simply cannot offer the deal Mr Johnson wants. Sure, it can dress up its offer on trade access and reduce its demands on fisheries. But it cannot bend its rules out of shape.
Mr Johnson is left with two choices. He can accept an improved version of Mr Barnier’s deal and, as he did with the withdrawal agreement, try to reframe defeat as victory. Or he can allow Britain to slide over the cliff edge without any agreement.
The government’s dismal performance over recent months scarcely gives cause for optimism. Financial Times May 28
The US trade war with China has slashed US$1.7 trillion from American companies’ market value, the Federal Reserve Bank of New York.
The higher tariffs, a tool to create a trade barrier against other countries, are poised to reduce American firms’ investment growth rate by nearly 2 percentage points.
The increased cost has already cut US investment expansion by 0.3 percentage points through the end of 2019 and will decrease by another 1.6 percentage points this year, according to the report published on Thursday by authors led by economist Mary Amiti, a vice-president at the Federal Reserve Bank of New York.
American firms bore almost all the cost of higher US import duties, and those that export to China also became less profitable due to Chinese tariffs, a finding that countered US President Donald Trump’s narrative that China is paying the tariffs.
The researchers, also including Columbia University’s Sang Hoon Kong and David Weinstein, used the comparison of stock prices to estimate lower expected profitability that in turn hurts future investment growth. The central bank’s research found that trade war announcements were associated with 8.9 per cent in stock price declines.
“Discussions of the trade war often focus only on US exports to and imports from China, missing the much larger exposure of US firms emanating from their subsidiaries in China,” the report said.
About 46 per cent of 3,000 US companies included in this report are exposed to China through importing, exporting or selling through subsidiaries. They generated an average of 2.3 per cent in revenue from China.
The Trump administration started slapping new tariffs on more than US$300 billion of Chinese goods in 2018 in order to correct the widening trade deficit the US had with China.
Despite a phase one trade deal the two countries struck in January that put the drawn-on conflict on pause and prevented the latest batch of planned tariffs from going into effect, hundreds of billions of dollars in tariffs remain in place.
Trump and his senior advisers have insisted that China is paying the cost. But earlier research have shown that American companies and consumers are “paying almost the full cost of US tariffs”, according to a paper by the National Bureau of Economic Research published in January.
In November research by the Federal Reserve Bank of New York, the prices Chinese firms charged have barely budged, meaning the increased part of the cost was borne by US companies and consumers, estimated at around US$40 billion annually. South China Morning Post May 29
Covid-19 slammed the brakes on Britain’s £82bn-a-year car industry. With the lockdown forcing dealers to shut, sales collapsed in April, falling 97pc to just 4,321 vehicles, building on a 44pc plunge the previous month.
According to data from the Finance Leasing Association, since the City regulator ordered lenders to give three-month payment holidays to cash-strapped motorists unable to service loans, there have been 482,000 requests for forbearance.
That’s not just bad news for car manufacturers, it’s bad news for the industry which funds purchases of vehicles, often the finance arms of car companies themselves. The UK’s car loan sector is worth about £75bn, with 6.5 million vehicles on finance deals.
Almost 90pc of these are on personal contract plans (PCPs), where customers effectively rent a car usually for three years. Under these deals, they make monthly payments, effectively covering the depreciation of a new car.
When the term ends, drivers can either hand back the keys and walk away, make a “balloon payment” for the residual value of the car and become its owner, or use any equity built up between the second value and how much they have paid on the existing car to finance a new deal.
Most take the third option and PCPs have fuelled the growth of the car market in the UK. Drivers are now used to the idea of a low monthly fee when compared with a normal loan covering the entire cost of a car, with the added advantage of driving a new vehicle every few years which likely requires less maintenance and is more fuel efficient.
Car companies love PCPs because it creates a regular “churn” of demand as deals end.
Cars coming off PCPs are pushed through into the second-hand market where manufacturers carefully manage supply to ensure prices are stable, as these residual values prop up the system. These cars are being increasingly sold through another PCP, with its presence in the used sector incrementally growing over the last few years.
However, the looming recession could cause the system to collapse. Financial commentator Louise Cooper, of CooperCity, describes the set up as a “house of cards” ready to come crashing down if coronavirus means millions losing their jobs and abandoning finance deals.
“It’s going to be catastrophic, armageddon,” she says. “People are going to prioritise food and their homes.”
If her prediction is correct, there will be a flood of nearly new cars into the used market, forcing prices down and loading up the balance sheets of manufacturers and finance houses with assets which have depreciated heavily as demand evaporates.
The Bank of England last looked at the car finance market three years ago. Its financial stability report revealed that automotive loans represented 29pc of the total consumer credit of £198bn.
According to the Bank’s modelling, for there to be trouble with the systems, used car prices would need to fall by about a third, a level that would mean hundreds of thousands of drivers with cars on PCPs handing them back.
Three years ago such a scenario was seen as outlandish. Coronavirus makes it plausible. Daily Telegraph 28 May
Ten weeks on from the peak of the coronavirus pandemic there are still acute shortages of personal protective equipment (PPE) and Covid-19 testing kits across the UK, particularly in rural and isolated locations.
On the Isle of Mull in the Inner Hebrides, however, the vital supplies arrive up to four times a day. They are flown in from the mainland by drone in a trial that could lead to the NHS regularly using drones to fly equipment and medical samples to many of Scotland’s roughly 90 inhabited islands.
The unmanned aircraft industry hopes that showing the public drones can help in the fight against Covid-19, perhaps even save lives by speeding up test time turnarounds, could pave the way for wider adoption of drone technology.
US investment bank Goldman Sachs believe drones could spawn a $100bn (£80bn) market if governments around the world allowed them to be used for everything from policing and border patrol to surveying vital infrastructuresuch as bridges, or even replacing moped riders to deliver pizzas and fried chicken direct to your door.
It’s not just the 2,800 people on Mull who are receiving PPE by drone in the pandemic. Another trial is carrying PPE from Lee-on-the-Solent to the Isle of Wight. Both trials required approval by the Civil Aviation Authority (CAA) as rules ban drone flights beyond the line of sight of the remote pilot.
Drones are also being used to send coronavirus tests back and forth to up to 2,500 hospitals and rural health outposts in Rwanda and Ghana. And the first US medical drone flight despatched a consignment of PPE to frontline workers in North Carolina.
Stephen Whiston, head of strategic planning for the Argyll and Bute health and social care partnership said drones could transform the speed with which doctors diagnose and treat patients across the authority’s rural community which is spread across 2,500 sq miles of western Scotland. This includes Mull and several other islands.
The 16km (10 mile) flight from Lorn and Islands district general hospital in Oban, on the mainland, to Mull and Iona community hospital in Craignure, on the north-west of the island, takes about 15 minutes compared with between 90 minutes to six hours by road and ferry.
Whiston said the two-week drone delivery trial, which is being run in partnership with drone operator Skyports and defence and technology company Thales, was planned before coronavirus struck but has been accelerated by the pandemic.
A second test this winter is crucial because “the Scottish weather can be very challenging”, says Whitson. If it’s successful he thinks drones could be deployed across NHS Scotland. “We would look to link up more of our islands,” he said. “And we have been sharing what we’re doing here with colleagues across Scotland, and there is significant interest about using it in the Western Isles, Clyde and the Grampians.”
In the current trial, using a German-made Wingcopter drone, a trained operator must pilot the drone and actively direct it via a live video feed. But future costs could be greatly reduced by allowing drones to fly missions autonomously said Raymond Li, head of air strategy and marketing for Thales Li said:
“Just imagine a fleet of thousands of drones doing everything from search and rescue, and border patrol to delivering food. There could even be air taxis [in which people are transported in drones without pilots],” he said. Guardian May 30