The report highlights the initial effects of the pandemic on the Welsh economy and details subsequent mitigation policies from both UK and Welsh Governments as the UK prepares for a recession in 2020.
The outbreak of the coronavirus has affected an economy that was already slowing down, with both production and investment facing significant problems in anticipation of the UK’s departure from the EU.
EIW, launched in 2018, is an unique collaboration between the Development Bank of Wales, Cardiff Business School and the Office of National Statistics (ONS). The group collates and analyses data to create independent, robust and reliable insight to help better understand and improve the Welsh economy.
Other findings of the report are that:
- Wales has the highest percentage increase of business dissolutions in the UK rising from 982 in March 2019 to 2,359 in March 2020.
- The tourism and hospitality sector in Wales has been severely affected, and the high proportion of firms in this sector and micro-businesses in Mid and South West Wales makes the region particularly vulnerable.
- According to the ONS Business Impact of COVID-19 Survey, since March 2020, 66% of Welsh SMEs reported a decrease in turnover, with one in four reporting a contraction of greater than 50%.
- Around 21% of Welsh SMEs had temporarily closed or paused trading, with most of these in leisure, hospitality, wholesale and construction.
- Credit risk ratings also show more Welsh SMEs falling into the High Risk group, increasing from 2.5% in March to 5.8% in May 2020.
- Demand for cash flow credit facilities has increased sharply with a third of businesses either having no cash reserves or cash flow remaining for just 3 months.
Government intervention has been important in mitigating the impact, with 48% of tourism industry firms having applied for the Welsh Government’s Economic Resilience Fund which included the £100m Covid-19 Wales Business Loan Scheme delivered by the Development Bank of Wales. Wales also has the highest rate of firms applying for the UK Government’s Job Retention Scheme with approximately 316,000 employees on furlough in Wales.
Despite the worrying outlook, some businesses have adapted their business practices by turning to digital tools. According to the FSB’s New Horizons survey, 40% of respondents had increased the use of digital technologies and their online presence, with 35% seeking to change their business practices to accommodate working from home.
This shows an appetite to adapt and thrive during this tumultuous time, and evidence suggests that Welsh firms have also proactively accessed the support packages available.
However, as the current data only helps to analyse the emerging situation, EIW will continue to monitor the data to better understand the true impact of the support packages available on the Welsh economy. This will be addressed in the next EIW bespoke report due to be published later in 2020.
Professor Max Munday, Director of Welsh Economy Research Unit at Cardiff Business School said: “The report reveals much about the expected fall in Welsh economic activity during the second quarter of this year, but more importantly highlights the role of public interventions in shielding the most vulnerable parts of our economy. As Economic Intelligence Wales continues to track the data, it will provide further insight into how the pandemic has effected the Welsh economy.
“Over the last year the Development Bank of Wales had an important role in supporting our SME base, but this role has been reinforced in the second quarter, with the Development Bank a critical provider of loans to help firms through the crisis.”
Giles Thorley, Chief Executive of the Development Bank of Wales said: “Economic Intelligence Wales continues to provide a deeper and more rounded understanding of the unique issues facing the Welsh economy and its SMEs which will be vital as we continue to deal with the fallout from the pandemic.
“This report gives a valuable insight into the early impacts of the global shock brought about by the COVID-19 pandemic and the effect it has had on the Welsh economy. This and subsequent reports will help inform policy decisions on how we can help with short-term interventions and long-term remedies to help us recover.”