Guernsey Press

‘Asking right questions key to interpreting finance shrinkage’

ASKING the right questions will be key to getting the right answers as to why Guernsey’s finance industry is contracting.

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Deputy Mark Helyar. (Picture by Sophie Rabey, 28917697)

That is the message from Mark Helyar, Policy and Resources’ treasury lead, after a new report set out how the sector is projected to contract by 7% in 2020, with ‘stress’ pre-dating the pandemic, and a ‘limited’ recovery forecast for 2021.

Pressures facing the industry were not just related to Covid-19 but included issues such as consolidation, he added.

‘Clearly we’ve got a fairly small footprint here,’ he said. ‘So if you do get consolidation then we’re at the end of the chain. So we’re likely to see the results potentially more quickly than you would do in a larger jurisdiction.’

Asked what could be done to assist the sector, Deputy Helyar said: ‘There’s nothing specifically in the Budget to help this, but I think what the surveys enable us to do is enable us to be able to ask the right questions of the right people.

‘We have a finance sector forum that I attend, along with Economic Development, and we will be able to address the question of where do you think the shrinkage is coming from? The label in the report is finance generally, and that means all sorts of different things.

‘I think the majority of the identified reduction is in banking and we’d have to ask the question, though, what is the reason for that? Is it too difficult to do business here? Are the costs too high? Are there regulatory issues that we can address to make life more easy? Those are the kinds of questions we’ll be asking.’

The situation has been set out in a report published by the States which highlighted a fall in finance employment since 2019.

‘The finance sector is showing evidence of stress with a fall in total employment, beginning in late 2019 and continuing into 2020,’ said the Guernsey Economic and Financial Stability Overview report. ‘By the second quarter of 2020 the total fall in employment in this sector compared to a year earlier was 4.9%.

‘Median earnings in the sector have increased, suggesting that job losses have been concentrated in more junior positions. Remuneration data indicates that this is one of the few sectors where conditions appear not to have improved in the third quarter.’

While the finance sector continued to be the largest economic sector, contributing 40% of Guernsey’s GDP, 2019 estimates show it demonstrated no real growth.

‘Forecasts for 2020 provide a central forecast for the sector of a 7% contraction, reflecting a reduction in employment and remuneration in the sector between September 2019 and June 2020.

‘This contraction, some of which pre-dates the outbreak of Covid-19, contributes 2.8 percentage points to the forecast contraction of GDP in 2020. The recovery forecast in 2021 is limited, reflecting an expectation of a continued restructuring in the sector in the coming quarters.’

Overall, the economic overview report has projected a ‘partial recovery’ of between 2% and 5% for 2021 after contraction this year.

But it added an important caveat, saying: ‘For 2021, much will depend on the speed at which the rollout of vaccines can enable a return to more normal functioning and the extent to which the widespread disruption caused by Covid-19 has reduced the capacity of the local economy or accelerated more widespread restructuring.’

The document also noted forecasts had been compiled on the ‘assumption that some level of travel restrictions will remain in place well into 2021, limiting the scope for recovery for those sectors most dependent on external travel’.

Risk of trade disruption as a result of uncertainty around a UK-EU trade deal, or otherwise, also posed a ‘downside risk’ to growth in 2021.