Next week will see evidence of one of the oldest political truths – even when you are giving away money you can’t keep everyone happy. The Government’s July stimulus plan will promise billions in new cash and loans, but the changing context in which the plan is being presented will make this much more difficult politically.
With the reopening plan delayed and worries about rising coronavirus cases, some businesses are going to remain shut and others will worry about how consumers will now behave. A second wave of damage to the economy is a threat, particularly if new closures are ordered. Perhaps ECB chief economist Philip Lane put it best when he referred to the recovery being a case of two steps forward and one step back.
It was never going to be simple. The official spin when the shutdown happened – that we were going to put the economy to sleep for a while and then wake it up – was never realistic. Some sectors are indeed doing fine but many publicans now face a longer period of closure, the travel and tourism sector remains in deep difficulty and there are other significant pockets of damage across the economy.
Let's not get too gloomy. The economy has shown some considerable resilience so far
The July stimulus, to be announced early next week, is half a continuation of the existing rescue plans and half an attempt to help companies get back to some kind of normality. Its central feature will be a continuation of the wage subsidy programme, supporting companies to keep staff in jobs – and probably extending it to support them taking on new ones. Cash grants to SMEs to help them restart will increase.
Supporting businesses and trying to save jobs is the right thing to do, even if it will push government borrowing to eye-watering levels of about €30 billion this year. And let’s not get too gloomy. The economy has shown some considerable resilience so far – we see this in the overall data and also in the many stories of companies reorganising and just keeping going. Even if it is choppy and nervous, we can hope for a recovery.
Confidence shaken
If the virus can be brought under some kind of control, the economy could get out of this – if not in one piece then at least with the prospect of a return to growth next year and the prospect of gradually repairing the damage. But of course that is the big if, which nobody can answer – and right now, after the initial reopening rush, our confidence is being hit again by rising case numbers and warnings from the medical experts that the outlook is precarious. And precarious medically equals precarious economically.
In the original narrative, the closure of the economy was to be followed by a “reboot” of activity. But we now seem to be in a messy middle phase as we hope to step out into a reopened economy and wonder what lies ahead, but aren’t quite sure yet the extent to which this is possible. We want to come out of the economic waiting room we find ourselves in, but are not quite sure that we can.
Many consumers have cash to spend, but are they confident enough to go out and do so? The Government, meanwhile, struggles with the reopening plan and with trying to come up with a policy for international travel.
The worst-affected sectors will shout loudest – the publicans, the hoteliers and tourism. Who can blame them?
So the context for the July stimulus is politically tricky. There will be a general welcome in business for the extension of the wage subsidy and the other measures. They will give some certainty – to the extent that this is possible – for the months ahead. But the worst-affected sectors will shout loudest – the publicans, the hoteliers and the tourism sector.
And who can blame them? The very existence of many is threatened and with uncertainty now over when many will reopen, and in what form, no amount of State aid is going to close the gap for some. This is where the political patter of saving the economy and businesses meets the reality for some of those businesses.
Big questions
A bigger question remains in the background. What are sectors such as tourism, hospitality, leisure, events, the arts and other customer-facing parts of the economy going to look like over the next few years? Are these sectors facing permanent, or semi-permanent, changes in consumer behaviour? Or by, say, this time next year will international tourists be back on the Wild Atlantic Way and people again be confident to go drinking in bars, or to the cinema or Electric Picnic?
If it is a case that we are living with the virus for a period of years, this has implications for how companies are supported
Nobody really has a clue as to the answer. But if it is a case that we are living with the virus for a period of years – as opposed to benefiting from an early vaccine – then this has implications for how companies are supported. What exactly will this “new normal” look like and how will consumers behave? This has vital implications for how the State supports businesses heading into 2021.
At some stage decisions will have to be made – are we looking at a smaller hospitality and tourism sector, for example, in the years ahead and what is the future for the events sector and even part of the arts? Is it a case of supporting companies through a largely temporary fall in demand, or trying to help the economy restructure while accepting some sectors are actually going to look different, have fewer companies and employ fewer people?
For now, answering these questions is impossible – though at some stage before long the Government will have to face them, if it is not to spend large sums supporting unviable firms. All it can do in the short term is to save as many businesses and jobs as it can. And to leave some cash or borrowing room in the locker in case a second wave does hit, or Brexit goes wrong.