Economic Intelligence Wales publishes 2020/21 annual report on the performance of the Welsh economy

The number of new business start-ups in Wales is outperforming all other areas of the UK with an increase of 31% in quarter one of 2021 compared to the same period in 2020.

The effects of Covid-19 and the initial post-Brexit trade agreement period on the Welsh economy have been tracked as part of Economic Intelligence Wales’ (EIW) annual report on the performance of the Welsh economy in 2020/21. Published today 24/08/21 the report shows:

• In Q1 2021 business starts in Wales are up 31 % on Q1 2020 (14% in UK) and business closures are down 1% in the same period compared to an increase of 7% across the UK.
• The value of Welsh exports in the year to Q1 2021 dropped by 27% while imports decreased by 25%, the highest of all UK countries.
• The proportion of Welsh SMEs using finance which were concerned about their ability to repay debt, increased from 24% in Q3 2020 (21% for UK SMEs) to 30% in Q4 2020 (24% for UK SMEs).
• The Development Bank of Wales’ interventions have been crucial during the Covid-19 crisis. Combining its business as usual investment levels with the Covid-19 Wales Business Loan Scheme support meant that every £1m of investment generated an estimated £4.7m of Welsh GVA.

Max Munday from the Welsh Economy Research Unit at Cardiff Business School said: “The annual report reveals something of a Welsh recovery from the worst of the Covid-19 pandemic and with an improvement in new business starts in the first quarter of the year. However, business prospects in the first half were still heavily impacted over uncertainty regarding Covid-19 regulations.”

“The data provides evidence of the important role played by the Development Bank through the worst of the pandemic period in supporting Welsh SMEs. Indeed, while much of the regional economy has seen activity fall in the year to April 2021, it has been an extremely busy time for the Bank in working to safeguard activity in our small firm base.”

The Economic Intelligence Wales report includes the Bank of England’s projection that UK GDP will rise by 7.25% in 2021, an improved forecast compared to the January 2021 prediction of 5% but the latest available quarterly GDP estimates for Wales for Q3 2020, demonstrate a 14.4% quarterly increase.

Despite the early signs of a sustained recovery, UK business investment contracted by 2.3% in the quarter to Q1 2021, remaining well below the pre-pandemic level in Q4 2019 (-18.4%). This is linked to businesses stockpiling during the Brexit transition period and a 14% contraction in UK trade with EU Member States. For Wales, the value of exports in the year to Q1 2021 dropped by 27% while imports decreased by 25%, the highest of all UK countries.

Economic Intelligence Wales also warns that there are projections for an increase in Welsh unemployment from 4.1% in 2020/21 to 6% in 2021/22. This is likely to coincide with the end of the furlough scheme.

Throughout 2020/21, Economic Intelligence Wales has tracked how these macro-economic events have affected the Welsh economy. The report shows that Wales stands out in the way the market has adjusted to the turbulence. The UK as a whole has seen both business starts and closures trending upwards but Wales really is outperforming other areas of the UK with business starts in Wales up by 31% and closures coming down 1% compared to an increase of 7% across the UK.

Giles Thorley, Chief Executive of the Development Bank of Wales said: “The last 18 months have been incredibly difficult for most businesses across Wales but we’ve also seen a record number of business start-ups as entrepreneurism and creativity shine through. Today’s report by Economic Intelligence Wales shows just how events have really fuelled the increased demand for funding of both start-ups and established businesses, including our Covid-19 Wales Business Loan Scheme that provided much needed cashflow support.

“Furthermore, the data provides important insight into the demand for finance across Wales and helps to improve our understanding of SMEs and their role within the Welsh economy helping us to  focus on the Development Bank’s wider economic impact by measuring our contribution and acting as a benchmark to guide our investment decisions.

“With every £1m of our combined business as usual and Covid-19 Wales Business Loan scheme investment generating an estimated £4.7m of Welsh GVA, we remain focused on providing sustainable and effective finance for Welsh businesses that drives recovery post-Covid and unlocks the economic potential of Wales.”