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Impact on output

UK economy to shrink by 5.4% if virus still active next year

Wireline industry

Shrinking: economy a knife-edge

Britain’s economy could shrink by 5.4% this year if the coronavirus persists into the second half of 2021, according to new data.

Amid continuing uncertainty around the longevity and depth of the virus, KPMG sees the UK economy contracting by 2.6% in 2020.

But a protracted outbreak could result in a more severe impact than the downturn experienced in 2008-09, it says. The economy is expected to recover by the second half of 2021 at the latest under both scenarios.

KPMG’s main scenario assumes the public health measures put in place around the world stem the rise in the number of cases by the summer. In this case, it is expected that the economy remains flat in the second half of the year with a strong recovery in the first half of 2021, as uncertainties around the pandemic dispel.

This would see UK GDP fall by 2.6% this year, then grow by 1.7% in 2021. However, if the pandemic persists until the second half of next year, GDP could contract by 5.4% this year and by another 1.4% in 2021.

Other forecasters predict falls in output by as much as 15% to 20%.

With so much uncertainty about how COVID-19 will develop in the weeks and months ahead, KPMG’s latest forecasts are based on a range of scenarios. However, even in its main one, the effects of the pandemic on global economic growth, consumer spending and business investment in particular, will still be highly significant.

Catherine Burnet, senior partner at KPMG UK in Scotland, said: “Fiscal measures and immediate relief action from the Scottish and UK Governments have gone some way to help mitigate some of the damage, but there’s widespread acknowledgement that more action will be needed in the coming months to keep the economy moving.

“The business community also needs to work together more collaboratively than ever before to ensure we’re playing our role in supporting employees, customers and wider society.”

Yael Selfin, chief economist at KPMG UK, said: “The COVID-19 pandemic is first and foremost a human crisis but there will also be a very substantial negative impact on the global economy and the UK’s economic performance this year and potentially next, but the economy is expected to recover by the second half of 2021.

“Until we know how and when the COVID-19 outbreak will end, the scale of the negative economic impact will be difficult to quantify. However, it is now almost certain that the UK is slipping into its first significant downturn in over a decade.”

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