Martin Hewes, Managing Director of Hewes Associates is one of the industry’s foremost forecasters, he publishes Construction Outlook which provides three years of forecast data for Housing, Infrastructure, Public non-Housing, Industrial, Commercial, Repair & Maintenance. Here he gives his view on what Coronavirus means to GDP.

 

What do we know so far?
To date we have little if any hard data revealing the impact of lockdown. What we do know is that with entire sectors shut down (restaurants, hospitality & sport), or partially shutdown (transport, construction), the UK economy will decline steeply in 2020.

 

OK, so by how much?
That largely depends upon two matters – the extent of lockdown, and the pace of recovery.

 

Let’s assume lockdown continues until the end of April, with recovery beyond.
Assuming the following profile: a modest decline in March GDP, followed by much reduced activity in April, followed by growth beyond, with monthly GDP rising gradually but persistently from May, then for 2020 GDP would be down by around 8%.

 

What are the assumptions underlying that?
Essentially, that April GDP is around 25% below levels seen at the end of 2019/start of 2020, and that beyond April monthly GDP recovers gradually, reaching end 2019 volumes by the end of 2020.

 

Right, but the outlook could be better, especially if we bounce back strongly.
Certainly it could. Still assuming April GDP down by 25%, but strong recovery beyond, results in a GDP decline for 2020 of around 5%. This assumes the economy not only ‘returns to normal’ but exceeds that by the end of the year.

 

That sounds a touch optimistic, what about the damage inflicted by lockdown?
That’s an important question. We have never been through such an event, so it is difficult to know what damage is underway.   However, if we assume certain sectors of the economy sustain lasting damage, and in addition that consumers are more cautious, then the outlook for GDP is much changed.

 

Much changed, you mean much worse!
Assuming again April GDP down by around 25%, beyond which recovery is weak, with GDP in December 2020 below that seen a year earlier, results in a 2020 GDP contraction of around 12%.

 

Right, but at this stage we have little in terms of firm data to gauge which scenario is right.
That is true, but at least the above scenarios give us an idea of possible outcomes, although there are others to consider.

 

Such as?
Well, the drop in GDP presently underway could be shallower, or steeper due to a prolonged lockdown. Perhaps the key issue is not so much the hit to GDP presently underway, but the structural damage resulting from the lockdown.

 

Can you briefly expand on that?
Key sectors, such as travel, hospitality, eating out, and those reliant upon overseas incomes (universities for instance) will suffer structural damage, which may take years to recover from.

 

April 2020