Although personal concerns subside, the magnitude of COVID’s economic impact remains unclear
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The personal concern index dropped a further 14% to its lowest ever reading. And while concerns about the elderly and the NHS continue to be front of mind, trustees are somewhat relieved by the signs of slowdown in COVID infection and death rates.
UK trustees expect many more to catch SARS-Cov-2, so becoming infected seems inevitable to them. And because they see the severity of the illness as random, some are saying they would rather contract the virus “to get it out of the way”. Concerns about the economy persist
In comparison with the personal concern index, professional concerns have subsided by only 6%. And while the expected minimum duration of the outbreak has shortened by 16%, the predicted outlook for the macro consequences remains unchanged. The accompanying comments continue to focus on lost productivity, risk of defaults and the impact on sponsor covenants.
However, there is a renewed focus on the loss of income from property and lending, which would severely upset pension fund cashflows:
A near-term consequence is a sharp drop in commercial rental income.
As businesses have been forced to adapt rapidly to remote working, the demand for office space may fall.
Mortgage holidays will have a negative influence on the bottom line of mortgage lenders.
Bankruptcies caused by the economic lockdown will further impact the lending space.
The current environment is testing UK pension boards, who need to be more agile than ever. Many are postponing long-term strategic decisions until the dust settles.
Brexit is just one bump on the road to recovery
The B-word has re-entered the post-COVID recovery rhetoric, but is only mentioned in passing – the road to recovery will be long, even with rapid growth after lockdown restrictions are lifted.
Any extension to the current measures would be considered bad news, as UK trustees are starting to question whether the negative effects on society and economy are justified by the medical impact of the SARS-Cov-2 virus.
The significant additional debt needed to protect jobs and prevent economic meltdown will weigh on taxes and future growth for a while to come.
As the world shifts from consumerism towards resilience and sustainability, the effect on some industries will be particularly severe:
The demand for and cashflows from commercial and residential property, and
The retail and travel industries.
Conversely, signs of recovery from China could boost markets and economic sentiment.
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About the COVID Concern Index
This short weekly survey helps gauge sentiment of our community on the pandemic. The results are distributed each week via the community newsletter.
The COVID Concern Index values should be used as indication only and do not constitute advice. Their values are bound by the choices available in the survey on which they are based.
COVID Concern Index:
0 = respondents are not worried at all
100 = respondents are extremely worried
Expected minimum duration of outbreak:
Lowest possible value = 0.5 month
Highest possible value = 6 months
Expected minimum duration of macro effects:
Lowest possible value = 1 month
Highest possible value = 12 months
Affected by the coronavirus outbreak? Click here to take part in the weekly COVID-19 survey.
