Midlands' economy 'will be the hardest hit' by coronavirus crisis
A new report says that the economic impact of the coronavirus pandemic will hit the West Midlands hardest of any region of the UK.
Accountants and professional services network KPMG said that its analysis of the likely impact of the outbreak indicated that the closure of car plants and mothballing of hundreds of factories connected to the automotive sector meant the region’s economy would shrink by 10.1 per cent this year.
The automotive sector makes up six per cent of the regional economy and is expected to be mainly dormant through the lockdown and take time to recover during the rest of the year.
Former Dudley North Labour MP Ian Austin described it as a "grim prediction" and said it underlined the urgent need for investment in new hi-tech sectors like low carbon, autonomous vehicles, digital media and healthcare.
Mr Austin said it was why Dudley College's new university campus was so important to the local economy.
His successor, Conservative MP Marco Longhi agreed and said: "The uni campus and investment in hi-tech was essential for Dudley pre Covid-19. The economic impact on the region and locally means that this investment is more needed than ever before."
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The KPMG report says London would be the least affected, with a contraction of 7.3 per cent.
It looked at economic forecasts and the mix of industries in each region and assessed how they will fare in the pandemic.
KPMG said London was better placed than other areas to maintain its economic activity, despite suffering the highest number of cases and deaths in the pandemic.
It suggests London’s services sector, from marketing and advertising to architecture and financial services, could carry on remotely through the lockdown and recover lost ground in the months afterwards.
KPMG’s chief economist, Yael Selfin, said the damage caused to the UK’s regions outside London and the South East would be a setback for the Government’s plans to “level up” the north and west of the country with the east and the south.
Analysis
“Our analysis highlights how the government’s ambition to ‘level up’ the UK will face a setback as a result of the pandemic. We expect that the gap between performance in London and the rest of the UK will widen this year,” she said.
The North West – a fall of 9.5 per cent – and East Midlands – a 9.7 per cent decline – are also reliant on manufacturing industries and lack many of the most resilient service industries. They will also suffer more than most regions along with the East of England region (a slip of 10 per cent), which KPMG said relies disproportionately on residential and commercial building, which has ceased during the lockdown.
Paul Forrest, director of the West Midlands Economic Forum, in his latest Midlands Perspectives report, echoes the KPMG conclusions and warns that the Midlands' output prospects are potentially bleak without a concerted regional-funded economic rehabilitation programme.
"One of the unusual, and unintentional, consequences of the pandemic, was that ministers remembered there was a manufacturing sector, and indeed it is worthwhile to re-state that the production sector is equivalent to close to a third of regional output," he said.
"However, Government focus appears to be on large corporations, rather than the bulk of manufacturers and related service sector enterprises whom are primarily small and medium-sized enterprises that employ less than 50 employees and mostly below 30 staff. The Government’s national structuring of the response would therefore seem to be overlooking these key producers, and the locus of innovative responses in the economy," he said.
Mr Forrest suggested that more regionally-orientated strategies could overcome this deficiency.
He thinks that demand for key regional automotive and aerospace exports is unlikely to recover rapidly.
"An adroit, funded regional industrial restoration strategy will be necessary if the local industrial bases are to be consolidated," he added.
Mr Forrest said the regional economy could have contracted by more than five per cent in the first quarter of the year and was likely to do so much more substantially in the second quarter, with anticipation of as much as a third.
