A Newport business leader has urged pundits not to pin the current recession upon the recent pandemic – and, he says, savvy firms will have already prepared well for the event.
Simon Williams, MD of self-storage specialists, Storage Giant, said the recession that is grabbing headlines this week is something many firms will have forecast and will have armed themselves for. He urges businesses to remain positive and to hold firm.
This week the Office for National Statistics (ONS) revealed Britain’s economy shrank by 20.4 percent between April and June, the largest contraction reported by a major economy so far for this period. However, the UK economy is growing again in Q3 and looks set to continue to do so in Q4. Monthly figures showed the economy bounced back by 8.7 percent in June, following upwardly revised growth of 2.4 percent in May, as lockdown restrictions eased.
Simon says: “Clearly, a recession is not good news for the UK or for its business communities. And, of course, many will be concerned about potential job losses. However it is important that the news does not get rolled into the general sense of hysteria coming from some quarters, surrounding the Covid pandemic. Of course, lockdown has had a big impact upon our service and hospitality industries and it is important we all do what we can to support them in their recovery. However, this recession was very much on the horizon, long before the pandemic hit. I began discussing with my senior team at Storage Giant a year ago to expect recession to begin in the second quarter of 2020. I am sure many company directors have been doing the same and, as such, have taken this shock into consideration when it comes to their financial planning. And, in fact, we saw the economy begin to bounce back from the pandemic in June, with shops reopening, factories beginning to increase production and house-building continuing to recover.
“There are bigger forces that exert a stronger pull on our economy. The big issue underlying the recession is the Collatorised Loan Obligation (CLO) market – single securities backed by a pool of debt. The 2008 recession was linked to CDOs (Collatorised Debt Obligations) which were made up of many low-quality mortgages. When people lost their jobs they couldn’t pay those mortgages, or, if they kept their jobs they took such unfavourably-structured mortgages that they couldn’t afford these. CLO’s are linked to company debt. Financial analytics firm, S&P Global Inc is predicting a large increase in corporate US bankruptcies this year. So far, the US has had 88 in the first six months compared to 43 in 2018 and 49 in 2019. The CLO market could be undermined, and the CLO market is bigger than the CDO market was in 2008, at the time of the last recession in the UK. This is very likely to impact British companies and it is something business should be aware of. The majority of businesses in the UK will get through this event. Many firms, like our own, are investing and expanding and will continue to do so. Our economy will recover, and it is important that we hold firm and keep cool heads.”