QES Shows Economic Growth May be Weakening as New Restrictions Take Hold
There has been a modest quarterly improvement in business activity but the imposition of additional restrictions more recently indicates that the economy may be losing some of the steam it gathered in the immediate aftermath of lockdown relaxation in July, according to Greater Manchester Chamber of Commerce's third quarterly Economic Survey (QES). The survey of over 400 businesses reveals that customer demand has decreased and reduced businesses confidence.
The GM Index, the key composite economic indicator for the city region, now stands at -9.2, still a very low level. Although current sales and advance orders from both domestic and overseas customers have improved from the very low levels in Q2, a combination of seasonal fluctuations during the main holiday period, increasing worry about the second wave of Covid-19 infections and the need for further restrictions have contributed to decreases in all QES measures compared with the results of the fortnightly Recovery Tracker data.
The balances relating to domestic demand, international demand and cashflow are all negative. This means that more businesses reported a reduction rather than an improvement. Capacity utilisation also remains low at 22%.
Subrahmaniam Krishnan-Harihara, Head of Research at Greater Manchester Chamber of Commerce, said: “The Chamber's QES data combined with COVID-19 tracker surveys shows the recovery trajectory for Greater Manchester's economy weakening after an early rise in June as lockdown measures were being relaxed. The quarterly data does show an improvement relative to Q2. However, it is now clear that the recovery from COVID-19 is going to be slow and difficult. Unless there is demand, capacity utilisation will not go up and when there is a lot of spare capacity, there are deflationary pressures. We know that this is already starting to have an impact - ONS data shows that 12-month CPI inflation rate was just 0.2% in August 2020, down from 1% in July 2020.
“The sub-regional picture shows GM Central least performing at this moment. This is hardly surprising given the concentration of retail and hospitality in Manchester city centre. The recent restrictions would be a certain dampener. The chances are that key city and town centres will take longer to recover but the possibility of long-term success of the city centre is very high. It would be interesting to see whether increased custom at local town centres will be sustained in the long-term.”
The balance relating to cash flow is around -15. Business confidence also remains low with many businesses reporting particular challenges on being able to maintain margins. The combination of weakened liquidity and low business confidence means there is not likely to be recruitment activity in the near-term.
Subrahmaniam added: “We have revised the economic outlook to reflect the latest survey results. After the increase in business activity as lockdown was being relaxed in June, there has been a subsequent plateauing. Current balances are much lower than initially expected and indicate a more drawn out recovery. The most likely scenario is a levelling off in demand, which could last into 2021, and a much slower recovery.
"Another key concern at the moment is around employment. The end of the furlough scheme on 31st October is likely to result in further job losses. Unfortunately, the Chancellor’s Winter Economic Plan does not offer direct support for businesses in the worst affected sectors. Nor does it address the very low levels of business and consumer confidence. Without absolute clarity on how businesses should operate during local restrictions and a package of support for those business adversely impacted thereby, there is the risk that the flicker of recovery may die out soon.”