The resilience of the local finance industries, alongside the Governments’ management of Covid-19, have placed the Islands in a stronger economic position than the UK.
This is according to EY’s report EY ITEM Club Winter Forecast: Outlook for the Channel Islands, a report commissioned by EY in the Channel Islands to analyse the impact of Covid-19 and Brexit on the local economies and forecast how these economic influences will impact the Islands over the coming year.
Martin Beck, EY’s ITEM Club Senior Economic Advisor, explained: “The EY ITEM Club’s new report on the economic outlook for the Channel Islands offers cause for hope, but also highlights some of the economic challenges faced by the Islands in adjusting to a post-Covid-19 world. That Jersey, and particularly Guernsey, have performed well internationally in responding to the public health challenge of Covid-19 hasn’t prevented a severe economic blow.
“But the rollout of vaccines offers the prospect of some return to normality as 2021 progresses. Pent-up demand, high levels of households savings and a global economic rebound should all aid the Channel Islands in repairing the virus’s economic damage”.
As highlighted in the report, the important role of tourism in employment and local spending means the Islands have, in some ways, been vulnerable. However, the large financial sectors, which account for around 40% of GVA in both Jersey and Guernsey, have offered some insulation from the worst of the damage.
Figures suggest we may see a rebound in the economy in GVA of 3% this year in Jersey and 2-5% in Guernsey. Although both predictions were made before the retightening of restrictions came into play in December last year for Jersey and January in Guernsey, there is still hope of figures reaching close to these projected figures.
In terms of Brexit, it is very much ‘business as usual’ for financial services in the Channel Islands. While challenges may well arise from current negotiations between the UK and EU to secure equivalence of financial regulation, this will also create opportunities for the Islands, as Andrew Dann, EY’s Channel Islands Managing Partner, explains:
“While the ongoing Brexit negations will undoubtably present challenges for the Channel Islands, they will also present opportunities for us to grow. The barriers to the flow of financial services between the UK and EU sides could create great opportunities for both islands in competing for UK clients with EU rivals.
“Overall, both islands have proven to be resilient in the face of the challenges and uncertainties faced over the past year, which is reflected in throughout our report. This resilience will be key to Islands’ economic recovery over the coming year”.
Looking at what the upcoming year holds, the report forecasts five key factors which will be influential in the macroeconomic outlook for the economies of the Channel Islands:
- The speed and success of vaccination rollouts
- The extent, or otherwise, of continued fiscal support
- The implications of continued low interest rates for financial services
- The strength of a revival in tourism
- Perceptions of the Channel Islands as a place to live and work
Mr Beck concludes: “The prospect of a slow recovery in tourism, headwinds to the financial sector from ultra low interest rates and threats to the Islands’ tax competitiveness mean economic recovery won’t be without its challenges.
“The Islands’ governments also face difficult decisions over how long to maintain what has been unprecedented fiscal support to the private sector. But the financial strength of Jersey and Guernsey suggests that, while the future is hardly lacking in risks and uncertainties, the Channel Islands should be better placed than many in dealing with them”.