The so-called Global Uncertainty Index hit a record high in 2019 before the word Coronavirus had even entered our consciousness. But the last 20 or so months have completely recalibrated the parameters of what uncertainty is. In the time since, businesses have had their worlds turned upside down and back again – things that they thought would never happen, did, and things they would have absolutely expected to happen didn’t – and have also therefore had to reset as well.
Economists are no different in this and have had to recalibrate too. The fact that governments and policy-makers everywhere effectively ripped up the rule book and went to any lengths necessary to enable economies to cope with the pandemic, created a new paradigm.
Deepest recession in a century
If someone had told us at the start of 2020 that we were going to go through the deepest recession in a century and end up with an unemployment rate of just over 4%, this probably would have been considered absurd. Logic would dictate that a double-digit contraction in economic output would create a double-digit unemployment figure. But there has been little logical about this period – as the Sunday Times columnist David Smith succinctly described it, it has been “the deepest recession, but also easily the weirdest”.
Recent revisions to GDP show that the recession last year was only the worst in 100 years not 300 years, as originally thought. Never-the-less, the worst recession in a century would usually be expected to lead to negative records all over the place. Counterintuitively though, corporate and personal insolvencies didn’t climb to record highs; rather they fell to record lows.
Hotel occupancy rates fell to zero
But there were also freak figures of the negative variety. Even the most pessimistic of forecasters would never have predicted hotel occupancy rates hitting zero percent, nor year-on-year car sales declines of 99%. And who would have thought that government would pay millions not to work, subsidise everyone to dine out, or hand consumers £100 to go out and shop.
On the labour market from, the latest figures for Northern Ireland demonstrate that the pandemic has not had the impact on the employment and unemployment figures that would reasonably have been expected. And the fact we are now talking about vaccination booster queues rather than dole queues says much about the things the government has got right since coronavirus entered our lives. They have faced much criticism for the surging infection rates as a result of indecision and inaction, but they were quick off the mark to stop unemployment surging through furlough and other measures. Yes, there was a record rate of redundancies but not anything like the scale you would expect with a downturn of the magnitude we saw.
Labour market exceeding expectations
Indeed, one of the major challenges for business now is not being able to find the talent to recruit, which is in complete contrast to where we were in early to mid-2020. At that stage, recruitment firms were wondering would they have a future and businesses were drafting P45s rather than job ads.
Getting back to pre-pandemic levels is the benchmark of recovery and the potential routes to do that can be represented in letters. Economists had initially debated whether it would be a V, W or even and an L shaped recovery. It now looks like it has been somewhere between a V and a W, which is on the better end of the spectrum. Not as positive as a V due to successive lockdowns but perhaps the closest we were ever realistically going to get.
In terms of GDP, we’re nearly there in terms of getting back to pre-pandemic levels and should get there early next year.
The labour market has exceeded expectations in particular by not just recovering to pre-pandemic levels but going beyond that with a record number of employees on payrolls. We are also seeing a record number of job vacancies. But it’s not all good news though. Self-employment has experienced something of an L-shaped recovery, with a fall of around 30% and many flocking to employers to become employees rather than entrepreneurs / business owners. 2022 may though see that trend go into reverse.
Housing market sees strong 12 months
On the housing front, the market ground to a complete halt in Q2 2020 and every woman, man and dog on the street expected prices to plummet. But not only did that not happen, prices have actually continued to rise ever since. Transactions recovered from their slump with estate agents experiencing the best 12-month period since 2007. Economists under-estimated the increased demand that would come from people moving back from GB to NI in the post-pandemic, working from home era. The rise in location agnostic jobs will provide fuel for this to continue, making NI an attractive proposition with our lower house prices and good standard of living. Quantifying this is one of the biggest unknowns in terms of predicting what will happen to the housing market in 2022.
Strange times indeed
But whilst we have seen many weird things in the housing market, labour market and in GDP, the most mind-boggling swings have actually been in energy prices. In oil markets, the price of a barrel went briefly negative in April 2020, when there wasn’t sufficient storage space for the oversupply. This meant that oil producers were prepared to pay to have it taken off their hands. The resulting slump in energy prices helped fill consumers’ savings. Compare that to now when record energy price rises causing utility bills to eat up large amounts of disposable income. Motorists will be only too aware that petrol and diesel prices have hit record highs. But the switch to electric vehicles has become more attractive as a result and for some, the potential for availing of subsidies running into several hundred pounds per month to drive a top of the range Porsche will prove irresistible. A Porsche boom in a pandemic. Strange times indeed.
For businesses though, it hasn’t been a uniform experience. As the NI Chamber has said in its latest survey, the business community could perhaps be divided into thirds – the third that is performing better than before the pandemic, the third that is performing the same, and the third that is performing worse. Aerospace and hospitality are notable examples that fit into the latter.
Challenges lie ahead
In 2022, things may well get better for these sectors. But overall, for the economy, major challenges still lie ahead. There is the ongoing challenges with inflation, supply chains and skills shortages. There is also the fiscal fallout of the pandemic with the ‘whatever it takes’ approach taken by policy makers needing to be paid for through higher taxation and spending cuts. We are through the weirdest recession in history. But plenty of uncertainty still lies ahead.