One year on, the pandemic still constricts growth but sentiment improves for the future - FAI Economic Commentary Vol 45 No.1
One year on, the pandemic still constricts growth but sentiment improves for the future
After a year of economic pain and ongoing uncertainty, certain sectors in the economy continue to bear the brunt.
The pandemic continues to take its toll on economic growth after an unprecedented year. The new variants and post-Christmas lockdowns have led to expectations for Scotland’s economic growth in 2021 being revised down, according to the latest Economic Commentary by the Fraser of Allander Institute at the University of Strathclyde.
In the Deloitte sponsored Economic Commentary, the Institute also sets out that expectations for growth in 2022 are stronger than previously forecast, building on the optimism that consumers feel on the back of a successful vaccine roll out.
With furlough schemes now in place until the Autumn, it is clear that the economy will need support past the point at which restrictions are lifted.
The forthcoming economic recovery could take many shapes, and policymakers in all levels in government will have a role in shaping the recovery.
The Institute today set out three possible scenarios for growth: a central scenario, a more optimistic scenario and a pessimistic scenario. The central scenario states that it is likely to be October 2022 before growth gets back to pre-pandemic levels, two months later than previously forecasted due to the impact on the economy of the second national lockdown. However, the pessimistic scenario sees the Scottish economy reaching pre-pandemic levels by July 2023, two months earlier than previously forecasted.
Mairi Spowage, Director of the Institute, said: “We have today set out new scenarios for growth in the Scottish economy. On the one hand, the additional hit we have had to our economy due to the post-Christmas lockdowns have led to us revising down growth in 2021, as we know we are likely to have a contraction in the first quarter.
“On the other hand, the rapid vaccination roll-out – at a pace that we could hardly have imagined – is boosting the optimism for the second half of 2021 and beyond. This has improved our expectation for growth in 2022.
Taking these two changes together, it means that overall, we are now predicting that we will get back to pre-pandemic levels in October 2022, two months later than we were forecasting in December.
“In our central scenario, we’re now expecting growth of 3.6% in 2021, followed by 5.6% in 2022.”
The Institute has been producing analysis since the start of the pandemic to show that the impacts of this crisis have not been evenly spread.
Emma Congreve, Head of Poverty & Equalities Analysis at the Institute, said: “One of the features of this economic crisis has been the differential impacts on different sectors. Businesses which have been able to adapt quickly to do much of their business remotely have been much less harder hit, whereas those who rely on social spending and face-to-face interaction have been much more severely impacted.
“With restrictions likely to continue for sectors like retail, hospitality and tourism for at least the first half of 2021, it is likely that a “twin-track” recovery will continue.
“Of particular concern to us is the impact on the hospitality sector, which generally employs younger and lower paid workers - and the knock-on effects that business closures in this industry have had across the Scottish economy. Getting these sectors and the rest of Scotland’s business community back on their feet will be crucial in securing a strong recovery.”
Gavin Hood, Partner and Head of Advisory Corporate Finance for Deloitte in Scotland said: “The private sector is hugely important to Scotland’s recovery and businesses across all sectors need to come out of this lockdown in a position to grow and invest in order that a strong, sustainable, fair and green economic recovery can be achieved.
“Sectors such as hospitality and tourism have experienced an exceptionally difficult 12 months as a result of various lockdowns and ongoing restrictions. Those that have been unable to pivot their business models and offer new services, understandably, continue to rely on government support to survive.
“However, while uncertainty remains as to what the future holds, with the vaccine deployment continuing at pace and the likelihood of looser restrictions in the coming months, there is a sense of optimism amongst Scotland’s business community. Those in the hardest hit sectors will be hoping for a smooth roll back of restrictions and a quick rebound in consumer demand to help make back some of the losses from the past 12 months and lay the foundations for a strong recovery.”
Mairi Spowage, Director of the Institute, concluded: “The impact of the pandemic over the last 12 months sets the scene for a very different election campaign in the run up to 6th May. There are particular sectors, like hospitality, that will be looking for commitments of continued support, extending beyond the period of lockdown restrictions.”
This edition of the Fraser Economic Commentary also includes three articles:
- “A guide to the Scottish Budget” Adam McGeoch & Ludovic Maguire
- “The policy response to Coronavirus: theory and application” Emma Congreve, Sophie Haldane & Mphatso Kumwenda
- “Mental Health during the COVID-19 Pandemic: The Affective, Behavioural, and Cognitive Responses of the Scottish Population” Cameron et al
Read the full report here
Published: 17 March 2021