Manoeuvring your way out of lockdown

In amongst the list of things you need to do now, I know that many of you are spending a lot of time thinking about the medium and long term futures of your business.

It’s almost the one thing that we daren’t speak about because its so shrouded in doubt.

But it can’t be ignored.

Last Saturday, my feature article was “begin with the ends in mind” with the emphasis on the plural because there are so many factors impacting our plans that are outside of our control.

To understand the likely economic environment your business is in, requires an economics degree at least and even then that probably wouldn’t be enough because there is no period in history that compares to the one we are in now.

Besides, if the world’s greatest minds don’t know how this will pan out then how should we?

In the meantime, the sensationalised newspaper headlines took us on a roller-coaster of emotions with one day the headlines saying that a vaccine could be ready in six months and then the following day the suggestion that our lives will be affected by this for at least 12 months.

Actually though, the most likely outcomes have not really changed since that infamous press conference of 13^thMarch when the concept of herd immunity was suggested as a solution. The basic maths of that press conference went like this:

• If we do nothing, we will have 180,000 people who will need to be in intensive care on ventilators by early June
• We have 5.000 ventilators
• We have to introduce measures to reduce the peak of this to below the NHS’s capacity to cope
• When 80% of us have had it, we will have “herd immunity”, the ability of the virus to spread will diminish and it will start to die out

Therefore, the tactics were to reduce the spread down to manageable levels and cope with the consequences.

And that’s essentially it. Even though the aspiration of herd immunity was abandoned when it was pointed out that this could result in 500,000 deaths, the tactics are still the same; just more extreme. Seek and destroy, increase testing, reduce social interaction by 60-70%, enhanced shielding, antibody tests, ban non-essential shopping, close schools, close offices etc.

Ultimately, I think most business owners have accepted that this thing is going to be around for at least a year and maybe two unless a vaccine can be mass-produced sooner and that seems unlikely (it took 5 years to develop a vaccine for Ebola).

There is little chance of eliminating this other than in countries with authoritarian governments (like China) and if we were to eliminate it, it could be back within weeks unless all international travel is banned.

So, what will the economic fallout from this be? This is where the hawks and doves diverge albeit there are a lot more hawks!

Kristaline Georgieva, Head of IMF said “we anticipate the worst economic fallout since the great depression”.

If that’s correct and most economists seem to lean towards that view, it is possible that we will have 5 million unemployed once furloughing comes to an end and the full impact is felt. The three recessions of my lifetime resulted in unemployment of 3m in January 1982 (12.5% of the workforce), 3m in January 1992 (10.5%) and 2.7m in September 2011 (8.4%). 5 million doesn’t seem far-fetched.

In the past, recessions tended to be local. This meant that their currency fell, making imports more costly but exports became cheaper to buyers. Therefore, the country in recession became more competitive and started to fix itself.

Of course, in this case everyone is suffering, so in theory there is no impact on currency rates. But in fact, Sterling has fallen against most currencies. The reasons are:

• That the UK initial reaction was too relaxed (don’t get me started on the decision to allow the Cheltenham festival to go ahead!)
• Post Brexit trade negotiations are of course paused with the clock ticking until we “properly” leave the EU
• Over-reliance on financial services meaning that foreign banks and governments repatriating cash has a bigger impact on us

But of course, our weaknesses are offset by becoming more competitive if we can develop the industries with the ability to export.

The arguments by the doves are that as lockdown is lifted, there will be a huge pent up demand which is suddenly released. In November 2010, Lord Young was forced to resign from government for saying that financially “some people have never had it so good”.

Whilst he was lambasted for the comment, what he said was essentially true. Those on a fixed income (in a job or on a pension) had the same income and lower costs.

And it will be same situation this time. Once people are able to spend their money, they will probably start spending it. Even many of those furloughed on 80% of their usual salary are probably saving money like never before especially if they have deferred mortgage payments. We are a nation of spenders and we will be again.

But lockdown will be released slowly and probably different industries will open at different times. You may need to adapt your business to meet a new demand or deliver what you do in a completely different way.

The hope is that furloughing will not cease in one hit because that week will be more catastrophic than the week beginning 16^th March was. So far, governments have done most of the heavy lifting but that can’t continue forever. At some point owner-managers are going to have to get back to business albeit in a way where health and safety requires you to be six feet apart, hundreds of thousands work from home permanently and mass gatherings are still banned.

We have to prepare.

And I’m already seeing it happening. Businesses are adapting. Transactions are being made. Owner-managers are developing new skills.

Trade will return. It won’t be instant. It won’t be same. Some industries will emerge quicker than others. It will be sporadic. It may require you to take on extra finance to get through the next 18 months. You may need to make redundancies. You may need some tough negotiations with your landlord. You might even need to use some of the protections available under insolvency law.

But a new economy will emerge and you will be part of it. And if you’re a client, we will help you with whatever you want us to help you with.

No need to inject yourself with disinfectant quite yet or whatever the President of the United States say.

Have a good weekend.