Posted on

Coronavirus and the economy

Calculator and pen economics

Lily in Year 13 wrote this article just before the start of Lockdown 2 in November 2020 in the UK. As we now gradually come out of Lockdown 3 some 7 months later, how much of the article rings true?

As of the 23rd March 2020 the UK was placed under lockdown and has been moving in and out of lockdowns and restrictions ever since. This is likely to cause an economic slowdown and possibly plunge the UK into recession over the coming years because when people are in lockdown consumption and aggregate demand in the UK is likely to fall. There will be impacts on workers and the UKs supply of goods domestically and from abroad which is also likely to negatively impact the economy. Overall, the UK and its economy is likely to suffer as a result of Covid-19.

Possible impacts

Firstly, aggregate demand in the UK will be hit by the virus as when people are quarantined they will be unable to go out and spend, especially as recently all shops selling non-essential goods along with bars and restaurants have been told to close meaning this spending in these sectors won’t be possible anymore. This will be added to by the low consumer confidence that is currently present as in uncertain times people save their money as a safety net so they will be able to support themselves in uncertain times.

Consumption patterns will also change, meaning goods with an income elasticity of demand between 0 and 1 are likely to see little change in demand as these goods are classed as necessities. Some might even see a rise in demand in the short term as people panic buy (think back to scenes of toilet roll panic buying in April 2020).

However, goods with an income elasticity over one are likely to see a decrease in demand as these are classed as luxuries so people won’t be prioritising purchasing these items when economics conditions are uncertain. This means that overall consumption will decrease as people don’t have the opportunity to spend as much out shopping or on luxuries and are also likely to be more cautious with their spending by nature. This fall in consumption will also be exacerbated if people’s incomes are negatively impacted, such as if they were previously working in the gig economy, perhaps on zero hour contracts or with irregular, situation-based income.

These people would be relying on their savings or help from the government for their money, meaning their spending and consumption is likely to fall. To encourage more spending the bank of England has dropped interest rates to a new record low 0.1% to encourage people to go out and spend instead of save as they will be receiving very little gain from letting their money sit in a bank account. Also, as if demand falls whilst there is still a constant level of supply prices of goods and services are likely fall. This can be seen through the drop in the price of flights as airlines suffer a shortage in demand. For example a flight from California to London would have previously cost $1000 can now be purchased for as low as $246 dollars. However, this drop in prices is likely to have a limited effect on demand because of the uncertainty currently which also means low interest rates are likely to have a limited effect in changing people’s behaviour. Recent travel bans will also limit the impact lower prices in the airline industry since people are unable to take advantage of these lower prices when they are unable to travel or will be deterred by quarantine times. This means that overall aggregate demand and consumption in the UK is likely to fall because there will be fewer opportunities for people to spend but mostly because of consumer uncertainty. This will negatively impact the UK economy.

Aggregate supply in the UK will also be impacted by the virus, impacting costs along with exports if less is being produced domestically. A fall in domestic supply could result in cost push inflation as if demand levels for some products remain steady prices would have to rise to make up for the limited stock or production due to covid-19 restraints on supply. This fall in supply could be caused if workers have to self-isolate and cannot go to work, meaning a company cannot operate at full capacity causing a shift inward on their PPF.

Companies might also have trouble receiving stock from other countries if their production has been impacted by the virus which could prevent production in domestic businesses. This is likely to hit the manufacturing industry especially hard as these rely on parts from abroad, such as the car company Jaguar which is now running out of parts it would usually ship from China[1], and people coming to work as it is very difficult to work from home if you worked in a factory. This effect on supply could be decreased depending as the UK has a flexible labour market, meaning people can easily move from job to job meaning businesses won’t be hit as hard by the shock as resources (people) can be reallocated more easily compared to France where the labour market is very inflexible.

This effect on supply also depends how flexible the product markets are as if a company could switch supplier there would be minimal effect especially if this new supplier was located domestically instead of abroad. There might also be a time lag if producers had stockpiled meaning it would take longer to run out of stock however is still likely to happen in the long term. In the long run this outbreak could cause LRAS curve to shift inwards if there is less investment as companies will be working harder to keep afloat rather than investing or spending on R&D meaning less will be invested into the countries long term productivity.

This can be seen though the fall in the share prices of the FTSE 100 as on 9th March 2020 the average prices of shares fell 8%[2], the worst day since the 2008 financial crisis with £144bn wiped off its combined value. These top 100 companies were likely to be some of the largest investment spenders. Although, as the UKs economy is mainly based on financial services, many can work from home meaning domestic supply issues may not affect the economy as much as countries that rely heavily on manufacturing such as China and Germany shown as Chinese economy shrank by 6.8% in the first quarter of 2020, the first contraction since 1976. The government could also reduce the effect on domestic supply by subsidising companies so they are able to invest in the technologies they need and keep production lines running, or as interest rates are low companies could take out a loan to invest. Meaning there are options for companies to try and uphold supply and investment. However, there is still the underlying issue of people not being able to go to work because of self-isolation. This will have a huge impact on supply in the UK and therefore the economy as if products aren’t being made they cannot be consumed and if they aren’t being consumed profits will fall leaving companies to have less money to invest, impacting supply in the short term along with productivity in the long term.

Overall, the impact of the virus is going to be wide-ranging across the world and in the UK, impacting both supply and demand. Impacts of the fall in supply in the short term will be slightly counteracted by the fall in aggregate demand as if both curves shift inwards there will be a new equilibrium point of production and cost push inflation is likely to be limited. However, the nation’s productivity and output will decrease which means the UKs GDP is likely to fall significantly, plunging the UK into a recession. The British government are spending more to combat some of the impacts however this is unlikely to cover the full economic impact and will see a rise in the government budget deficit as a result. This also makes it likely that we will see the government to following a policy of austerity over the coming years, meaning people in the UK and the UKs economy are likely to be hit hard by this crisis. However, as the virus is a global pandemic, it is likely that its impact will also be mirrored across the rest of the world.[3]

2021 Update

The UK Government introduced the furlough scheme to support workers and businesses who were unable to run as normal owing to the impact of the virus. Up to April 2021 this has cost over £61 billion[4], with 4.7 million jobs impacted. Government spending is at the highest figure ever seen outside of periods of war.[5]

With increasing numbers of the population having now been vaccinated against the virus, and the recently announced reopening of restaurants from 17 May 2021[6], there is a feeling that we are gradually moving out of the crisis and that normality is becoming closer.

However, the vast spending seen since the crisis started in January 2020 will almost certainly mean that a return to a pre-pandemic life will be a challenge and that further austerity will be required to settle the books. The need to ‘level up’ the country, as announced by the Prime Minister on 11 May 2021[7], will be central to life as we know it for many years to come. Whether this can be achieved will be subject to criticism and debate for the significant future.

[1] See https://www.independent.co.uk/news/business/news/coronavirus-jaguar-land-rover-suitcases-supply-chain-factories-china-a9343336.html

[2] See https://www.theguardian.com/business/2020/mar/09/ftse-plunges-to-below-6000-amid-global-coronavirus-sell-off-oil#:~:text=9%20March%202020%20Fears%20of,into%20an%20official%20bear%20market.

[3] See https://www.ons.gov.uk/economy/grossdomesticproductgdp/articles/coronavirusandtheimpactonoutputintheukeconomy/december2020#:~:text=6.,declined%20by%209.9%25%20in%202020.&text=GDP%20measured%20by%20the%20output,growth%20of%201.4%25%20in%202019. The impact on the UK economy is a 9.9% fall in GDP over the course of the year.

[4] Table and reference from https://www.statista.com/statistics/1122100/uk-cost-of-furlough-scheme/

[5] See https://www.bbc.co.uk/news/business-52663523

[6] See https://www.telegraph.co.uk/politics/2021/05/12/covid-lockdown-roadmap-new-rules-may-17-dates-when-end/

[7] See https://inews.co.uk/news/politics/queens-speech-2021-boris-johnson-pledges-to-harness-spirit-of-lockdown-as-he-sets-out-uks-covid-recovery-995558

Posted on

The positive geographies of Covid-19

Dr. Stephanie Harel, Acting Head of Geography, explores the positive geographies of our current global pandemic, including a stronger local sense of place and a greater environmental consciousness.

As an educator, I concern myself every day with demonstrating how and why “Geography matters”. Central to our discipline, and indeed my own academic interests, is the often-contested concept of ‘place’. At its heart, lies the notion of a meaningful segment of geographical space, although what is also important to understand, is that places are dynamic and multifaceted[1]. Recently, I introduced our Year 12 students to these ideas, as part of the Changing Spaces, Making Places unit in our OCR specification. Over the past three weeks, we have explored the difference between ‘place’ and ‘space’, the characteristics that constitute a place profile and how perception of place can vary depending on factors such as age, gender and personal experience. Lively class debates have discussed how people can see, experience and understand place in different ways and, perhaps most importantly, how our relationships with places can change over time.

I love teaching this unit, because it aligns with my own research interests and allows me to delve into what was the focus of my doctoral thesis. My PhD explored the complexities of people’s emotional response to disasters. Acknowledging that people negotiate their emotions in different ways, my thesis demonstrated the complex ways that emotions influence how the disaster displaced relate to ‘home’ in the aftermath of disaster. As a practitioner, I see much value in using this research to develop students’ understanding of how the concept of place works in practice. During Guided Home Learning, for example, I relished the opportunity to teach a two-week segment as part of the Geography elective for Years 11-13, which explored the ‘Emotional Geographies of Home’. In our sessions, I shared stories from real people who had lost their homes as a result of the 2011 flood event in Brisbane, Australia, and 2011 earthquake in Christchurch, New Zealand. As I explained to my students, the aim of my PhD research was to extend geographic knowledge on the emotional dynamics of natural disasters. However, I also aimed to contribute to debates within our discipline about how places can be disrupted and altered in a myriad of ways and as a consequence of both physical and human processes. Again, these sessions promoted incredibly rich discussions. The level of independent thought and active enquiry shown in students’ post-course reflections showed deep engagement with course content, on both an academic and a personal level; as a teacher, it was richly rewarding to read these reflections.

While my doctoral research was carried out within the context of natural disasters, I believe there is huge potential to explore these ideas further, within our current global climate. Media outlets across the country are presenting the endless disruption caused to places as a result of the COVID-19 global pandemic. This is important, of course; the economic and social consequences of COVID-19 will undoubtedly be severe and long lasting. Still, I would like to intervene amidst what sometimes feels like a barrage of negativity. I want to suggest that there are many positive ways in which the pandemic has altered places around the world, at a variety of different scales. The following, therefore, is what I deem to be ‘The positive geographies of COVID-19’:

A stronger ‘sense of place’

When I was researching in Brisbane and Christchurch, and indeed for my Masters research in the aftermath of Hurricane Katrina[2], one of the positive outcomes of the experience of a natural disaster was the way in which communities came together in the face of crisis. My research exemplified how emotions play a key role in the construction of place and many of my interview narratives demonstrated the value of social capital in the aftermath of catastrophe. Narratives of those who were displaced and subsequently returned to post-earthquake Christchurch, for example, discussed the importance of community support networks and the strengthening of their local neighbourhoods in the aftermath of the earthquake. From what I’ve seen in 2020, the same concepts ring true during a global pandemic.

Above: Hurricane Katrina Flooding, Pixabay

In Geography, a ‘sense of place’ refers to a feeling of belonging; a strong identity that is deeply felt by inhabitants and visitors. It is often a term used by humanistic geographers to describe our attachment to specific locations[3]. I would argue that with communities coming together to clap for NHS carers and networks of volunteers supporting vulnerable members of their communities, lockdown deeply enhanced our local sense of place. It also, I believe, caused us all to redefine our relationship with ‘home’, purely because we spent such an unusually large amount of time there. Socially distanced neighbourhood street parties and road WhatsApp groups where neighbours could check in on each other became the new norm. The 75th anniversary of VE day saw us all aptly enjoying the sound of ‘We will meet again’, celebrating with our local communities, from the comfort of our own driveways. In a personal capacity, lockdown resulted in a significant increase in the amount of time I was able to spend with my husband and young daughter; time I will cherish. I was able to witness my daughter’s first wobbly steps, knowing this was only possible because I was working from home. I then watched her grow confidence as she navigated the potholes along our road, cheered on (from a distance) by our kind neighbours.

Although I have long explored the concept of ‘place’ and acknowledged the way in which places are constructed by humans and human interactions, COVID-19 illuminated this reality in a way I never expected. Places truly are defined by the people within them; it is the experiences we have, and the relationships and memories we create that make geographical locations meaningful. The stronger sense of local place I feel towards my local community is evidence of this, but I am also struck by heightened sense of place created here at school as a result of the pandemic. Despite lockdown, our community remained united – Together Apart – and I think this unwavering sense of place experienced at Wimbledon High School during a time of national crisis is worthy of celebration.

Environmental consciousness

As well as teaching the core Human Geography Unit in Year 12, I also teach our Year 13 Geographers the core Physical systems unit, ‘Earth’s Life Support Systems’. Content within ELSS incorporates an understanding of our global water and carbon cycles, the consequences of human activity on these natural systems and the importance of management strategies which protect our vulnerable planet. Carbon emissions remain one of the world’s most significant environmental concerns. Emerging and developing countries, such as China and India have long been at the top of the contributor list for global greenhouse gas emissions. Interestingly, however, the pandemic has shut down industrial activity and temporarily slashed air pollution levels all around the world.

Above: Pollution levels in China in 2019, left, and 2020. Photograph: Guardian Visuals / ESA satellite data

I find myself wondering: Inadvertently, is this the largest scale pollution experiment the world has ever seen? Could this be the outcome of moving towards a low-carbon, green, economy in the future? And it is not just our dominant developing countries that have seen the positive effects of lower carbon emissions as a result of COVID-induced lockdowns. Italy’s usually heavily congested roads substantially reduced levels of traffic, resulting in drastically lower nitrogen oxide levels in the country[4]. The positive environmental consequences of this are unprecedented and offer an opportunity to think more critically about the implications of our everyday practices.

In addition to the global decline in factory pollution, it is also worthy to acknowledge the positive implications associated with a reduction in air travel as a result of national lockdowns around world. Today’s society is a society (normally) on the move. With the development of mass automobility and aeromobility, the scale of our travel has grown immense, and social life and social organisation are increasingly dependent on mobility[5]. COVID-19, however, has restricted our international mobility in a way that feels almost unnaturally authoritarian. While of course I acknowledge the challenges associated with being bound within our national territories, I’d also like to highlight the positives. The outcome of an inability to travel abroad is an increase in local and national ‘staycations’. I admit that I am someone who has lived in Australia and the USA, but never been to the Peak District. I’ve travelled to Singapore but haven’t explored many of the islands from my Scottish homeland. What COVID-19 has allowed for is an appreciation of the natural beauty that surrounds us not only in locally in London and the South-East, but all over the British Isles. As a nation, our inability to holiday overseas has increased an awareness of our local geographies, prompting an enjoyment of these local landscapes and the wonders that surround us, and sparking a renewed environmental awareness that aims to preserve them.

So then, it is pertinent to remember that 2020 is not a year to write off; perhaps it is, instead, a year full of opportunities. A time to connect and reconnect. A chance to acknowledge the beauty of our local surroundings and reconsider the impact our patterns of consumption so that we can rectify our environmental impact. As a geographer, I have long been fascinated by the relationship between people and places. I hope this post has demonstrated how geographers can offer some very useful ideas for making sense of our current situation; what has happened, what we might be feeling, and how we might go forward – stronger than before.

References:

[1] Cresswell, T. (2004) Place: A short introduction. Blackwell Publishing

[2] Morrice, S. (2012) Heartache and Hurricane Katrina: Recognising the influence of emotion in post-disaster return decisions. Area 45(1), 1-7.

[3] Massey, D. (2005). For Space. London: Sage.

[4] Watts, J. & Kommenda, N. (2020) Coronavirus pandemic leading to huge drop in air pollution. Accessed at: https://www.theguardian.com/environment/2020/mar/23/coronavirus-pandemic-leading-to-huge-drop-in-air-pollution

[5] Gustafan, P. (2014) Place attachment in an age of mobility. In Manzo and Devine-Wright Place (eds.) attachement: Advances in Theory, Methods and Application. Routledge, 2014.