Resilience in a downturn - The Monday Briefing


The pandemic has been vastly disruptive, arguably more so than any single event since the last war. It has also prompted powerful responses from government and the private sector. This week’s briefing considers six examples of adaptability and resilience.

The lockdown triggered a huge redeployment of the workforce. In the UK the lockdown raised the proportion of those in employment working remotely from 5% to 47%. With virtually no notice, employers, and nearly half of the nation’s workforce, fundamentally changed the way they worked. It was somewhat akin to a wartime mobilisation of the workforce, but one affected by an army of mainly private organisations.

Some of the change will stick. Polling of a large business audience in our weekly COVID-19 webinar shows that around 60% of respondents would like to work in the office for three or fewer days after the pandemic. Many firms are asking their employees to work from home for an extended period. NatWest recently announced that about 50,000 of its staff would be working from home into 2021. The transition to home working in a few days in March is a story of remarkable adaptation.

Technology made it possible. As offices, restaurants and shops closed the internet helped to mitigate the impact of social distancing, maintaining connections between individuals and keeping some industries going. In the US, internet traffic handled by AT&T, one of the largest providers, was up by 25% on normal levels. Few other infrastructure systems could meet and sustain such a surge in demand. Unlike many other systems, which are built on optimisation and efficiency, broadband providers build in excess capacity to cope with surges in demand. Some optimised systems, such as just-in-time supply chains, have come under pressure during the pandemic. The internet ‘just-in-case’ model of built-in excess capacity may become a model for others.

Banks were at the heart of the global financial crisis 12 years ago. This time UK banks entered the pandemic with much stronger balance sheets enabling them to step up lending to business (the key tier 1 measure of capital, equal to shareholder equity and retained earnings relative to total risk-weighted assets, has risen threefold since the financial crisis). Banks have also served as the primary channel for much of the extra business support provided by governments. In 2008–09 the withdrawal of credit from the economy by banks reinforced the downturn. Ten years of regulation and reform has created a more resilient banking system, one that has played a major role in countering the downturn.

Financial markets have stayed liquid and resilient in the face a deep downturn, though it didn’t look that way in late March. As the scale of the threat posed by COVID-19 became apparent panic spread into the market for US Treasuries, the world’s most important financial asset. Investors, desperate for liquidity, sold US Treasuries, causing wild price swings and sharp falls in prices. Measure of stress in financial markets surged beyond 2008 levels. Equity prices collapsed. At times the stability of the global financial system looked at risk. But central banks responded at pace and in scale, slashing interest rates, increasing quantitative easing programmes and targeting distress in financial markets. In the US the Federal Reserve delivered a series of measures, going beyond those it took during the financial crisis, including ramping up liquidity injections into the treasury market. Volatility fell and confidence has returned, stoking a recovery in global equity markets.

The fact that financial markets have continued to function testifies to the effectiveness of the government response. Policymakers have torn up the rulebook to counter the crisis, delivering support in new areas. The word furlough has gained a new prominence in British English. The income and job support scheme has avoided a huge surge in unemployment and collapse in incomes. 9.6m employees have been placed on furlough, almost one-third of total employment. Businesses have also been supported through government guaranteed lending schemes. A £51.7bn of lending to corporates had been issued under such initiatives. Exceptional measures come at exceptional cost, yet the cost of inaction would have been higher. The criticism of fiscal policy during the financial crisis – that it was too little too late – cannot be made this time round.

The pandemic and lockdown threatened food supplies. Customers rushed to stockpile non-perishable goods including toilet roll, pasta and tinned goods. The strain was compounded as households switched from eating out to eating at home. The UN warned of a “looming food crisis”; in the UK three academics wrote to the government calling for rationing to be introduced. But food did not run out. Supply chains responded, with products being repackaged and redirected from the wholesale and restaurant market to supermarkets. Factories shifted capacity to key products, and supermarkets rationed items and increased home deliveries. Supermarkets hired new staff and switched back-office workers to the shop floor. A flour mill in Hertfordshire, England, hired enough staff to move from a five-day to a seven-day operation, producing an extra 350,000 bags of flour a week in the process. The government responded by relaxing rules that limited cooperation between supermarkets and recognising food supply workers as key workers. Faced with huge and sustained global disruption the surprise, perhaps, was not that there were queues and some shortages in supermarkets – but that they were not more severe.

The pandemic has been a test of infrastructure, organisations and systems. Like all crises this one has exposed weaknesses. But it has also demonstrated the adaptability and resilience of much of the economy.

For the latest charts and data on health and economics, visit our COVID-19 Economics Monitor: