Key economic survey reveals fastest and deepest collapse on record

Chamber SM Farm

The latest Quarterly Economic Survey (QES) published by Northern Ireland Chamber of Commerce and Industry (NI Chamber) and BDO, highlights that Covid-19 has precipitated the worst QES performance on record.

The survey suggests that the immediate impact of Covid-19 is much greater than the aftermath of the 2008/09 financial crash, with dramatic falls in short term indicators around domestic sales, exports, jobs, cash flow and in longer term indicators around business confidence and investment intentions.

historic lows: Ann McGregor, Chief Executive of NI Chamber.

The fall out on staffing for members from Covid-19 in just one quarter has been seismic:

n 77 per cent have furloughed employees and 12 per cent have made staff redundant.

n In addition, 23 per cent have reduced working hours for staff and a number of businesses mentioned salary reductions, either temporary or permanent.

n One in two members (52 per cent) highlighted their intention to reduce staff levels post Covid-19.

n Almost one in five (17 per cent) imply that the business might not survive.

The survey also indicates that businesses will introduce new ways of working post Covid:

n The biggest change is in the proportion intending to introduce flexible working (62 per cent) but also almost one in four (23 per cent) intend to reduce office space.

n 30 per cent of businesses believe that they will change the products/services they supply.

Businesses are understandably more negative about future business prospects:

n Seven in 10 members (69 per cent) believe that their business prospects will deteriorate over the next 12 months. This figure was just 25 per cent when asked in the Q4 19 survey.

n On a more positive note, there is still a core of members, almost one in four, who believe their business will grow over the coming year.

This quarter NI Chamber’s quarterly Brexit Watch asked members about preparations for Brexit:

n Two in five members are currently making preparations for Brexit (44 per cent) while 50 per cent are making no preparations at all.

n Covid-19 has disrupted Brexit planning with 38 per cent of members making fewer preparations to leave the EU while dealing from the fall out of the virus on their business.

n Despite the UK formally rejecting an extension to the transition period, three in five members (60 per cent) believe that more time is needed and that the transition period should have been extended.

Commenting on the findings, Ann McGregor, Chief Executive of NI Chamber, said: “This survey reflects the fall out of arguably the worst economic and social crisis of our lifetime.

“In terms of the economy, the vast majority of indicators dropped to historic lows, with declines far exceeding those seen at the height of the global financial crisis.

“The services sector suffered particularly badly, with consumer-facing firms most acutely exposed to economic headwinds from the pandemic.

“The manufacturing sector had a dismal three months, with collapsing demand and major disruption to supply chains weighing on the sector.

“The unprecedented slump in business cash flow is a key concern as it severely hampers business activity and staff retention.

“Businesses were already concerned about the impact of Brexit on the economy before Covid-19, however the recent pandemic has placed this in an entirely different context – with companies facing a ‘double whammy’ of Brexit and the Covid-19 fallout, placing a huge challenge on the business community in Northern Ireland.”

Brian Murphy, Managing Partner, BDO NI, said: “There can be no sugar coating that these findings are stark. Stark, but sadly expected.

“Few individuals or businesses have escaped the impact of Covid-19 and the unprecedented lockdown that has been in place for over three months.

“What we must do now is focus on how we adapt to the new way of life and grow the economy.

“The UK Government and NI Executive have moved quickly to help many businesses survive and be able to reopen.

“The furlough scheme, which 77 per cent availed of, demonstrates that this quick action has helped save jobs that otherwise would have been lost.

“It is deeply concerning that 52 per cent of businesses plan to reduce staffing levels, however, without the furlough scheme there is no doubt this number would have been significantly higher.

“We need the NI Executive to support local businesses as they innovate, looking to develop new technologies or services to meet the emerging demands.

“We need Government to harness our world class digital businesses and tech sector and empower them to grow.

“The Executive must also move to support new training and reskilling programmes that would allow workforces and businesses to be adaptable and flexible to meet the demands of a post Covid-19 world.

“Businesses also have their role to play, where possible they should support local firms to secure the supply chain and boost the local economy.

“Fifteen per cent of respondents indicated they were planning to do so, as time passes we would expect this number to increase.

“We don’t yet know what the new reality will be, however, it is encouraging to see from the survey that despite the challenges, four out of five firms expect to remain in business.

“In order to survive and thrive they need to adapt to the new normal right now and not expect life to return to how it was only a few months ago. The world has changed. Business must meet this change.”

Commenting on actions from government that will help businesses recover and invest, Ms McGregor said: “The key areas to be addressed remain as they did before – skills, infrastructure, growing exports and reducing the cost of doing business – whilst any new strategy must also provide a swifter movement towards digitalisation and sustainability.

“However, a major barrier to achieving this will be the enhanced levels of debt which the Covid-19 pandemic has created amongst businesses, meaning an investment in growth will be difficult or impossible unless the Government acts swiftly.

“Whilst we welcome the formation of the EAG to advise the Economy Minister, NI Chamber believes that Northern Ireland needs a cross sectoral, cross departmental advisory group which develops a strategy similar to the Scottish government’s ‘Towards a Robust, Resilient Wellbeing Economy for Scotland’ and Scotland’s Fiscal Recovery Plan.”

In response, Northern Ireland Chamber of Commerce and Industry has recommended the following actions:

n A Business Revival Fund that firms can use in any way they need (change products/services, invest in new markets, introduce more sustainable practices, invest in AI, etc) to deal with the fall out of the Covid-19 crisis

n A Rapid Response Trade Programme that protects and grows Northern Ireland’s export/external trade base (through a range of supports including advice, training, access to networks, finance) and supports businesses dealing with new trade arrangements post EU exit

n A business focused Reskilling/Up-skilling Programme working directly with the local business community to design and implement a range of supports that allows businesses to preserve and grow their workforce with skills directly aligned to existing and/or new business needs

n An overhaul of Government procurement with a renewed emphasis on local sourcing, opening up opportunities to a wider range of businesses/organisations (including smaller businesses), building in more sustainable procurement practices

n A review of business indebtedness to understand the scale of indebtedness and ability of business to meet repayments and interest, particularly in light of the extensive Government backed lending response to the Covid-19 crisis.

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