Published Monday 29th March 2021
COVID-19 has reached almost every country in the world with damaging economic repercussions for all. During numerous lockdowns and restrictions, many companies have suffered as reduced operations and new ways of doing business had to become the norm.
With record levels of borrowing and international debt, many are calling for fast action and policy changes to protect the global economy and prevent further waves of debt. Here, we look at the state of the global economy, what we can expect from the first stages of recovery and what this means for UK businesses.
A comprehensive cost reduction strategy is now more important than ever for businesses looking to survive economic difficulties and achieve growth. To find out how Expense Reduction Analysts could help, please get in touch with our team.
The COVID Debt Crisis
The World Bank has recently reported that the global economy is experiencing its biggest slump since the 1930s.
With an unsustainable global debt to GDP ratio, many countries are already struggling under the weight of COVID debts and defaulting on them, despite interest levels remaining unprecedentedly low.
David Malpass, the World Bank’s president, states that the ‘pandemic has exacerbated existing debt-related risks and vulnerabilities’ – compounding an already struggling economy that was vulnerable to problems posed by debt, the growth rate of potential global output has slowed down substantially.
Vulnerable Emerging Markets
Emerging markets and developing economies have, unsurprisingly, seen a steep increase in debt. The burden on these nations will manifest in a further increase in the gap between rich and poor countries.
Many are already discussing the role and responsibilities of more advanced countries when it comes to supporting the economic recovery of vulnerable markets – especially when considering vaccine procurement and rollout.
Recovering Advanced Economies
Of course, more advanced economies are also experiencing unprecedented difficulties, with projections of slow and challenging recoveries to come.
China was the only economy to experience growth in 2020, with many other nations looking to learn from the country’s initial recovery.
Yet, China’s recovery seems a hard act to follow. Even before the pandemic, there were worries about spending pressures and unsustainable debt for the UK, with looming issues such as an increasingly-ageing population and Brexit.
For many businesses, genuine recovery hangs on the success of comprehensive vaccine rollouts and the continued support of strategic government spending and re-investment.
The Cost of Demand-Driven Debt
The economic damage experienced by economies like the UK has been largely driven by a fall in demand, especially for services.
Due to the restrictions posed by the pandemic, customers have just not been there to buy goods and services. This is especially evident in the travel and tourism industry, where it’s not possible to move business online like with retail.
To combat limited operations and financial flow, many businesses have been forced to cut costs by reducing staff. As unemployment rates rise, there are fears of this leading to a potential economic spiral as those without a steady income cannot purchase goods and services even when they become readily available again.
Economists have been quick to state that a demand-driven recession can be countered by government spending through schemes like the Bounce Back Loan Scheme for businesses and furlough. This gives businesses and citizens at least some means of support before work and operations return to pre-COVID levels.
Global Economic Recovery
At this stage, recovery timelines for many larger economies rely heavily on the success of vaccine rollouts.
Assuming there is a widespread and successful deployment of COVID-19 vaccines, the global economy is expected to expand by 4% in 2021 as it becomes safe for the return of growth-sustaining levels of economic activity.
The World Bank also calls for the need for more comprehensive debt management, budget policies, structural reforms and stronger transparency and governance if growth is to be made sustainable.
How Will the UK Economy Recover from COVID?
Despite a national lockdown during the first quarter of 2021 and the economic shrinkage that inevitably comes with that, many individuals and businesses are holding onto hope that the current vaccine rollout will begin the UK’s journey towards a level of pre-COVID normalcy.
However, some have suggested that it will take more than two years for the UK’s economy to return to pre-COVID levels.
Due to the UK’s weaker position after dealing with simultaneous shocks from both the pandemic and Brexit, economists suggest that UK businesses may remain slightly behind their European counterparts when it comes to recovery times.
Amid fears of rising debt, the government has also announced that businesses making use of state-backed loan schemes will be given more time to make repayments.
Many of these loans have been taken out by businesses to help them merely survive rather than achieve growth. A new government loan scheme dubbed the Recovery Loan Scheme, which is accessible on April 6th, gives businesses further options and puts an emphasis on growth and recovery rather than short-term survival.
Businesses that are looking to the future and thinking about long-term growth must also consider the importance of expense management and cost reduction. More effective cost reduction strategies allow businesses to extend more resources to avenues of growth.
Here at Expense Reduction Analysts, we have supported countless UK businesses over the course of the pandemic, advising them on cost reduction strategies that will allow them to thrive. To find out more about how we could help you, contact our expert team today.