Monthly economic brief: October 2020

GDP growth outlook

Economic output forecasts for 2020 have stabilised in recent months, however significant short term uncertainty remains for the final quarter of the year as well as for the medium term as new local restrictions on activity are introduced to suppress the spread of the virus.

• The scale and duration of the economic impacts from the pandemic remain highly uncertain with substantial ongoing risks associated with further increases in infection rates and the reintroduction of restrictions, the pace at which economic activity and output will recover to pre-pandemic levels, and the feed through to the labour market as support schemes are changed.

• At a global level, the IMF World Economic Outlook Update^[37] projects global GDP to fall by 4.4% in 2020 with output from Advanced Economies falling 5.8% and Emerging Markets and Developing Economies falling 3.3%.
• At a UK level, the latest average of new independent forecasts published by HM Treasury^[38] suggests UK GDP could contract by 10.2% in 2020.  While the range of annual forecasts became narrower around the mean in October, there remains significant uncertainty around what might happen in the final quarter of 2020 as countries reintroduce further restrictions on domestic and international activity to slow the spread of the virus.  This could result in the recovery losing momentum.
• At a domestic level, latest business surveys indicate that the stabilisation and strengthening of business activity as firms reopened from the national lockdown has slowed slightly at the end of the third quarter, reflecting that, underlying demand in the economy remains subdued and uncertainty for the outlook, for business and households, remains elevated.
• In Scotland, scenario analysis published in the latest State of the Economy report in September, suggests GDP could fall by 9.8% in 2020 and not return to pre-crisis levels until the end of 2023, whilst unemployment could rise to 8.2%, and potentially take longer to recover.^[39]