Scotland’s economy recovering but fragile

Scotland’s economy has recovered half the fall in GDP which followed the necessary restrictions imposed in March to control coronavirus (COVID-19), but may still not return to pre-pandemic levels until the end of 2023, a report has found.

The latest State of the Economy report, published by the Scottish Government’s Chief Economist Gary Gillespie, also highlights the risks that the Scottish economy is facing as a new phase of support is rolled out, and restrictions on business and households continue.

Unemployment is expected to increase to 8.2% by the end of this year, as the UK Government’s new Job Support Scheme will provide less extensive support than its predecessor and is not likely to be as effective at suppressing unemployment as the original furlough scheme.

The report also documents how:

• GDP should continue to recover into the third quarter, however there is greater uncertainty around what might happen to output in the fourth quarter
• this is due to risks from the potential for a second wave of coronavirus and further local and international restrictions, as well as a possible failure to agree a trade deal with the EU
• even as the economy recovers, the impacts of coronavirus and necessary restrictions on activity are increasingly being felt differently across sectors
• trading conditions for some sectors remain extremely challenging with many operating at reduced levels of capacity and facing ongoing cashflow challenges 
• analysis in the report shows Scotland’s economic output could fall 9.8% in 2020, with global economic uncertainty remaining elevated

Economy Secretary Fiona Hyslop said:

“We are taking every possible step to protect jobs as we work to rebuild our economy. This report highlights some positive steps towards this, but our economy remains fragile and recovery will be slow.

“Currently we have over 217,000 people still on furlough in Scotland, and what the Chancellor set out last week does not go far enough. With only a matter of weeks to go until the end of the furlough scheme, businesses have already taken difficult decisions and now need greater certainty and more time to plan. Our analysis suggested 61,000 jobs would be saved if the furlough scheme was extended by eight months, and it appears that from the detail we have that this scheme will not provide the support that was hoped for.

“As well as clarity on funding for devolved governments, we also need more support for our hardest hit sectors like events, hospitality and tourism, and flexible support that recognises the impact of future local lockdowns.

“As we have stressed before, we have responded to COVID-19 without the fiscal levers we require. Not only is the UK Government denying us the appropriate financial powers needed to fully respond to the pandemic, it has also removed any clarity about how much funding we will receive by deciding to scrap this autumn’s UK Budget.

“This underlines the need for us to have full financial powers to ensure we are in control of our own finances to help rebuild our economy.”  

Background:

State of the Economy