Report reveals how corona crisis will hit Jersey’s economy

Tuesday 31 March 2020

From a recession, to significant job losses and a severe housing market slowdown…a new report has predicted how Jersey’s economy will be hit by the current global health emergency.

The analysis, which predicts the economy will contract by over 6%, was put together by the Fiscal Policy Panel (FPP) - a group of independent economic experts, who advise the government on tax policy and use of its emergency funding.

In the letter, FPP Chair Dame Kate Barker wants that “a short-term cyclical downturn cannot be averted," but also warns that Jersey is also likely to suffer long-term damage.

The panel forecasts that some firms and individuals will suffer “extreme economic hardship” or bankruptcy, with a drop in employment highly likely “as firms seek to cut costs to mitigate the fall in demand or are forced to close."

Pictured: The FPP predict all sectors will feel the impact of covid-19.

In other areas of the economy, there will be labour shortages: “As infection rates increase in Jersey, this will result in increased time off work due to sickness. Self-isolation is also being advised for certain individuals, to prevent the spread of the virus. In addition, closing schools will result in many working parents and carers needing to stay at home. While many employees will be able to work from home during self-isolation, this will not be the case particularly for sectors that involve face-to-face interactions. For example, Jersey’s financial sector is likely to see less disruption due to staff absence than might be the case in the residential care sector.”

Profitability is expected to be hit in every part of the economy - including the largest sector, finance, whose profits will drop by around 2% driven by lower interest rates and reduced demand. 

Hospitality and leisure will be among the hardest hit sectors, however, with the panel predicting a “decline in revenues as locals avoid public places in addition to the loss of visitors."

“The travel sector is already facing challenges caused by the reduction in travel, with the collapse of Flybe at least partly driven by the global pandemic. While labour shortages will affect a range of sectors, it will be most acutely felt if there is disruption to the provision of essential services – not least the medical and care sectors, which will also see a spike in demand,” the Panel continued. 

The housing market will feel a “sharp slowdown”, the FPP predicted. Transactions are expected to half, while prices are predicted to shoot down by 10%.

Pictured: The FPP's predictions for how the covid-19 crisis will impact on the local economy.

While Jersey hasn’t been hit by significant supply chain issues - other than local “panic-buying of non-perishables and specific items to combat the virus, e.g. hand sanitiser” - the Panel noted that it may suffer as a result of the escalating situation in the UK. 

“…Most of Jersey’s goods come from or through the UK and as the number of infections increases there, there is likely to be some disruption to either the production or transport of goods. This is in addition to the broader disruption already to global supply chains.” 

With the global health emergency expected to lead to a fall in average earnings, Jersey’s income tax take will be lower than previous years.

For that reason, the Panel says it is no longer recommending that the government runs surpluses. 

Instead, the FPP say that it should be ready to dip into its emergency funding pots - the rainy day fund and Stabilisation Fund - to provide an “urgent stimulus to the economy." 

The FPP noted that the government had already announced some measures to mitigate the impact of covid-19, including support to GPs and deferral of GST, but concluded the letter by calling for a “package” of support to help the island through the crisis, including: 

• “liquidity and cash flow measures, to help otherwise sound firms with short-term shortfalls;
• support for business to ensure employment rates do not contract unnecessarily;
• short-term support for individuals and households in hardship;
• and a temporary package of fiscal stimulus.” 

Their findings were shared in a letter to the Treasury Minister as the government began unveiling plans to keep the economy ticking during the covid-19 crisis. 

They include a payroll co-funding scheme, which can support around 27,000 employees, and the launch of a loan guarantee scheme today, which will see the government back 80% of loans between  £5,000 to £500,000 if local businesses are unable to pay it back as a result of the covid-19 crisis.

Responding to the report, Minister for Treasury and Resources Deputy Susie Pinel, commented:  “The Government of Jersey is committed to supporting businesses and households through this challenging time. We have announced a number of measures to date, including support to businesses such as deferring payments of GST and Social Security contributions as well as additional support to the health sector and a three month payroll co-funding scheme worth £100 million, which can support up to 27,000 employees, that’s half the Island workforce and help keep islanders in their jobs during this difficult time. 

“While the ultimate impact of Covid-19 is difficult to predict at this stage, the panel’s findings demonstrate the potential for a significant recessionary impact this year, seeing a short, very sharp fall in economic output in the next six months.” 

“Thanks to our prudent approach to finances, Jersey has considerable reserves that have been built up over many years to respond to conditions such as this. The Government will not hesitate to leverage off our financial strength to bridge the economy over the coming weeks. My ministerial colleagues and I will continue to develop a package that will support the economy to take advantage of the recovery when the outbreak is over.” 

READ the full letter by clicking HERE.

Who are the FPP? 

The Fiscal Policy Panel was established to provide the Treasury Minister with independent advice on matters relating to tax and spending policy, as well as the use of the island’s back-up funding pots.

The members of the panel are:

• Dame Kate Barker (Chair), who has been on the FPP since 2014 and chair since 2016.
  
  She was made a Dame in 2014 for services to the British economy, which included leading a quality review of the UK National Accounts for the Office for National Statistics, and leading two major policy reviews reporting to the Chancellor and Secretary of State for Communities and Local Government relating to housing supply, among other responsibilities.

• Professor Francis Breedon, a Professor of Economics and Finance at Queen Mary University of London. 
  
  He worked at the Bank of England for seven years and has held numerous senior economics positions in the private sector. His research covers international finance, macroeconomics and fiscal policy, including government funding and sovereign wealth funds.

• Mr Richard Davies, a Fellow at the Centre for Economic Performance at LSE.
  
  He was also previously adviser to the Chancellor of the Exchequer George Osborne, and worked at the Bank of England where he managed teams covering international macroeconomics.