Regional impact of the pandemic – new estimates of regional output in 2020

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Regional impact of the pandemic – new estimates of regional output in 2020

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By Stuart McIntyre

2020 was an unprecedented year in many respects. The public health crisis induced by the Covid-19 pandemic has generated the largest economic shock in over a century – and this in spite of the unprecedented fiscal policy measures that have been taken to support the economy.

The latest estimate suggests that the UK economy has contracted by 9.9% in 2020. While the pattern of growth, driven by public health restrictions, has meant that the economy has not seen a double-dip recession (yet), it is clear that there are significant challenges ahead.

Since the onset of the pandemic there has been lots of interest in tracking the regional economic impacts of the crisis.

We’ve been running our regional nowcasting model throughout this crisis to explore what the latest headline changes in GDP imply about real-terms regional growth.

In this blog we present our results for 2020 as a whole.

Ordinarily we would have received data on regional growth in the UK for 2019 from the ONS at the end of December. However, in light of the pandemic these will not be released until May 2021. For this reason we also highlight the estimates from our model for 2019, as well as for 2020 (Table 1).

Table 1: Annual estimates of real-terms regional growth in the UK

In contrast to 2019, 2020 has been a year of unprecedented contractions in the economy. Our model suggests that the declines in economic activity in 2020 have been largest in London, Wales, and the West Midlands, and the least severe (although in historical terms still extremely large) in East Midlands, Scotland and the South West of England.

Our model, as explained in previous blog posts, has a number of key features embedded within it, including that regional growth aggregates to the latest (in this case 2020 Q4) UK GDP growth. But it also requires that our annual regional growth estimates align with those of the ONS for the period where these are available (currently this is to 2018).

Taking our estimates of regional growth over the past five years (2015-2018 estimates align with the latest published ONS estimates), we can get a longer term perspective on regional economic performance (Figure 1).

Figure 1: Regional economic performance since 2015

This provides some useful insights into growth performance across the UK since 2015. Again, just to reiterate, data for 2015 – 2018 come from our model but are the same (by design) as the official estimates from the ONS, while 2019 and 2020 are our model estimates).

We can see how strongly, London, the East of England and the West Midlands have grown over this period, relative to the other parts of the UK. Despite experiencing some of the largest declines in activity in 2020, they have still had among the strongest performance over this period.

Meanwhile, the North East of England is a clear stand out as having exceptionally weak economic performance over this period. Places like Wales and Northern Ireland have had a challenging 2019 and 2020, but prior to this had been in the ‘middle of the pack’ of regions as it were.

We have noted before that Northern Ireland and Scotland have more timely estimates of growth, produced by the Northern Ireland Statistics and Research Agency and the Scottish Government.

For Northern Ireland these data cover up to Q3 2020. A comparison of our estimates (which pre-2019 align with official ONS estimates) and the NISRA estimates are contained in Figure 2.

Note that while the ONS/KMMP series (which comes from our model) covers all four quarters of 2020, the NISRA series is based on only the first three quarters of 2020. Nevertheless, we can see similar drops in activity in 2020 being suggested by both series.

Figure 2: GVA Index in Northern Ireland

For Scotland, the latest Scottish Government series run to Q3 2020. Comparing our estimates for 2020 to the data from the Scottish Government provides another useful insight into the reasonableness of our own model estimates. Note that again the ONS/KMMP series (which comes from our model) covers all four quarters of 2020, the Scottish Government series is based on only the first three quarters of 2020.

Figure 3: GVA Index in Scotland

Conclusions

It is clear that 2020 has been an unprecedented period in our economic history. In time we will gain a better understanding of the many ways in which this is true.

Our estimates suggest that the pandemic has hit some parts of the UK harder than others.

Some of those hit hardest (London, East of England and West Midlands) were economically the best performing parts of the UK since 2015. This decline in activity in some of the most dynamic parts of our economy is clearly a concern.

At the same time, we shouldn’t lose sight of the differences in economic performance across regions going into the pandemic. London, for example, has seen the greatest decline in economic activity, but it also realised one of the largest increases in activity between 2015 and 2019. This is a region that has shown itself to have the fundamental conditions capable of supporting sustained increases in economic activity.

The North East of England in contrast may have seen a decline in activity in 2020 that was only slightly larger than the UK as a whole, but this comes off the back of years of weak economic growth. With the region struggling to generate growth in the lead up to the crisis, this raises a real concern about its ability to generate the rapid growth necessary to recover quickly from the shock that the pandemic has brought.

It is going to be essential that economic policy through the recovery recognises not just the differences in the scale of the shock, but also differences across regions in the conditions necessary to support economic growth.

You can access all of our historic quarterly estimates here.

ESCoE blogs are published to further debate.  Any views expressed are solely those of the author(s) and so cannot be taken to represent those of the ESCoE, its partner institutions or the Office for National Statistics.

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