The combined impact of Tier 3 restrictions and the national lockdown have contributed to a considerable dampening of demand, according to Greater Manchester Chamber of Commerce’s Quarterly Economic Survey (QES) for the last quarter of 2020 (Q4).
The Chamber's last two Recovery Tracker surveys covering October and November had already indicated that customer demand was starting to decline after the modest improvement in the Chamber’s QES for the third quarter (Q3). Now this latest survey of nearly 400 businesses reveals that customer demand has fallen and lessened businesses confidence.
The GM Index, the key composite economic indicator for our city region, now stands at -20.7, a 11 points reduction from the previous quarter’s results. This is the third successive quarter in which the index has been negative. Current sales and advance orders from both domestic and overseas customers decreased relative to Q3, an outcome of the additional Covid-19 related restrictions the whole of Greater Manchester has been subject to. The balances relating to domestic demand, international demand and cashflow are all negative for all three sector groups: manufacturing, services and construction. This means that more businesses reported a reduction rather than an improvement. Capacity utilisation also remains low at 23%, unchanged from Q3.
Subrahmaniam Krishnan-Harihara, Head of Research at Greater Manchester Chamber of Commerce, said: “It will not be a surprise to many that the GM Index has gone down to -20.7 in Q4. Greater Manchester has been under some form of restrictions since end of July. In October, GM went to more stringent tier 3 restrictions. In November, we had the second national lockdown, and the city region is now back in tier 3 restrictions.
"Through our recovery tracker surveys in October and November, we have identified that demand levels have declined to where they were in June. In other words, the gains of the summer have all been lost. The Chamber's QES data combined with COVID-19 tracker surveys shows the recovery trajectory for Greater Manchester's economy considerably weakening in the last two months. It is now clear that the recovery from COVID-19 is going to be slow and difficult. Unless there is a substantial improvement in customer demand, businesses will not be able to raise revenues, cash reserves and operational capacity.”
Around 47% of respondents to the QES say they are not optimistic about maintaining revenues. Around 55% of respondents are also not confident about margins and profitability. Except in the construction sector, respondents have reported that they have reduced workforce in the last three months and the recruitment intentions for the next three months are not encouraging. The data shows that all three sector groups will reduce headcount in the coming months. This matches labour market data published by the Office for National Statistics, which showed that the number of payroll employees has fallen by 819,00 since February 2020.
Subrahmaniam added: “The lack of progress on Brexit is another factor adding to business anxiety. Brexit preparation is inadequate because businesses are facing severe cash pressures. At a time the UK economy is being fundamentally restructured by Covid-19, Brexit uncertainty and the likelihood of a no-deal scenario could serve a dual blow to the hope of recovery.
“We have revised the economic outlook to reflect the latest survey results. Current balances are much lower than initially expected and indicate stagnation. The restructuring of the economy could also lead to reduced employment opportunities.
"Without absolute clarity on how businesses should adapt to Brexit, the combination of additional cost of compliance, Covid-19 related local restrictions and poor festive trade could cause a prolonged period of low business activity levels. For businesses across Greater Manchester, that is a daunting prospect."
You can find out more about the QES results, by watching a video of the Quarterly Economic Update here.