Monthly economic brief: August 2021

GDP growth outlook

Optimism for the economic outlook this year has continued to strengthen.

• As a result of the successful rollout of the vaccination programme, and the corresponding easing in public health restrictions, the Scottish Fiscal Commission (SFC)^[25] have upgraded their economic outlook for Scotland. They now expect that the Scottish economy will grow by 6.7% in 2021, and return to pre-pandemic levels by April to June 2022, almost two years sooner than forecast in January.
• In line with other forecasters, the SFC have also revised down their forecast of unemployment. They still expect unemployment to increase as the furlough scheme unwinds, but to now peak at 5.4%, much lower than the previous forecast peak of 7.6%.
• The Fraser of Allander Institute forecast, from June, is for GDP to grow by 5.9% in 2021. Overall, GDP is forecast to return to pre-pandemic levels by July 2022, a quarter earlier than had previously been forecast.^[26]
• At a UK level, the IMF forecast UK GDP to grow 7% in 2021 (revised up from 5.3% in April). This is broadly in line with the Bank of England’s May forecast^[27] of 7.25% and the latest average of new independent UK forecasts^[28] published by HM Treasury which points to UK GDP growth of 7.1% in 2021. Reflecting the general improvement in optimism for the outlook, supported by stronger than expected activity in the first half of the year, the delivery of the vaccination programme and easing of restrictions, the average new forecast for 2021 has risen each month since February and is up 0.3 percentage points from the average new forecast in June.

• At a global level, the IMF’s latest forecast from July projects world GDP to grow 6% in 2021 following the fall of 3.2% in 2020.^[29] At an aggregate level, this remains unchanged from their previous forecast in April, however reflects an upward revision to their growth forecasts for Advanced Economies (up 0.5 percentage points to 5.6%) and a downward revision to their forecast for Emerging Market and Developing Economies (down 0.4 percentage points to 6.7%) with the IMF highlighting that differences in vaccine access and policy support have contributed to greater divergences in the expected pace of recovery across countries.