How is COVID-19 impacting the Scottish economy?
Until the beginning of the COVID-19 crisis, the Scottish economy was experiencing modest, albeit steady, growth. Official data indicated that Scottish GDP increased by 0.2% in Q4 2019. Unemployment was consistently near record lows. There were some positive signs of increasing economic resilience globally.
However, the unprecedented level of disruption to our society caused by the global pandemic and the UK-wide ‘lockdown’ will have an unprecedented impact on our economy.
Emerging data and the latest forecasts suggest that a severe recession is likely in Scotland, the UK and other major economies. But for how long, and how deep, is for now unclear.
Forecasts vary in a highly uncertain, fast-moving context. The Centre for Economics and Business Research (CEBR) estimates that the crisis could wipe 15% off UK GDP in Q2 2020 alone.
Meanwhile, KPMG have modelled two different scenarios. A more optimistic scenario forecast suggests that UK GDP could decline by 2.6% in 2020, but then rebound relatively strongly in 2021 with growth of 1.7%. A more pessimistic scenario forecast, in which the ‘lockdown’ and pandemic last several months longer, suggests that UK GDP could contract by 5.4% in 2020 and again by 1.4% in 2021, representing a more painful recession than the downturn of just over a decade ago.
Businesses in key sectors for the Scottish economy such as aviation, retail, tourism and hospitality are at high risk from the disruption, which could have a significant impact on the labour market. CEBR anticipate unemployment to double this quarter, which would mean joblessness in Scotland rising to around 7%. Over 477,000 people across the UK applied for Universal Credit in a period of just 9 days at the beginning of the ‘lockdown’.
SCDI has welcomed the essential support announced to date by the UK Government and the Scottish Government to minimise the negative impact on employers, workers and the self-employed – including the Coronavirus Job Retention Scheme, the COVID-19 Corporate Financing Facility, the Self-Employed Income Support Scheme and various other packages of rates and regulatory reliefs.
However, we have also urged the injection of this into the economy to be accelerated and for gaps in support to be closed. Time is critical to save businesses and protect jobs. We need investment at scale and at pace to stabilise our economy and protect our industrial and workforce capacity for the future beyond the crisis.
No one, and no business, should be left behind.
For all of the latest data and forecasts in one place, download our latest State of the Nation briefing below.