The Scottish economy is now in its deepest recession in living memory, according to the latest Economic Commentary by the Fraser of Allander Institute at the University of Strathclyde.
The Institute points out that whilst the depth of the collapse in GDP is largely artificial and entirely due to the lockdown, what matters is how quickly activity bounces back once the restrictions are lifted.
All signs are however, that there will be some scarring and it will take some time before the economy recovers to a ‘new normal’.
The outlook for the next few months looks hugely challenging. The unprecedented government support has provided an invaluable safety net –
■ Around £10 billion of funding support for the Scottish economy through additional resources for the Scottish Government and various business support schemes. Equivalent to over 5% of GDP.
■ Over 750,000 employees furloughed & self-employed workers supported via the Coronavirus Job Retention and Self-employment Income Support Schemes.
Considering the complexity of restart, supply chain disconnects, lower demand and dwindled corporate cash reserves the expectation is that there will be a spike in closures and job losses in the next few weeks and months as firms look ahead to the rolling back of government support later in the year.
The Commentary considers a range of scenarios from a more optimistic scenario where confidence builds momentum, through to a more pessimistic scenario which includes a second wave of infection.
In the optimistic scenario, the economy is projected to take until the end of 2021, at the earliest, to fully recover lost output. In the pessimistic scenario, it could be 2024 before a ‘new normal’ is reached.
The Institute also points out that even when the economy returns to growth, the underlying structure of Scotland’s business base will be altered forever.
You can read the full report here