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Warning of second wave

Recovery ‘could take four years’ says research group

Graeme Roy

Graeme Roy: crisis (pic: Terry Murden)

Scotland is now in its deepest recession in living memory and recovery could take up to four years,” according to the latest data.

When output does recover, the underlying structure of Scotland’s business base “will be altered forever.”

In its latest commentary, the Fraser of Allander Institute says that 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 warns that a second wave of the virus could delay the “new normal” until 2024. 

Director Professor Graeme Roy says: “The near 20% drop in economic activity in April for Scotland highlights the scale of the economic crisis that we face.

“So far, as a result of the major government support initiatives that have been put in place – including around 750,000 employees furloughed or supported through the self-employment scheme – the impact of the full effects of the crisis have been dampened.

“Sadly, it is only now once we start to switch the economy back on that the crisis will hit home with a raft of redundancies and business closures likely over the summer.”

Among four key priorities the Institute identifies for policymakers during the re-start is a need to avoid a second wave of infections.

It is only now once we start to switch the economy back on that the crisis will hit home

– Graeme Roy, Fraser of Allander Institute

Mairi Spowage, deputy director of the Institute, says: “The need for an effective testing and tracking regime at scale is urgent. The fact that it is still not in place is a concern.”

She also says there must be an effective plan for the safe return of schools to let parents return to work.

“Failure to do so risks extending the economic crisis and widening inequalities,” it says, in a warning that preceded an apparent u-turn by the government which now appears more willing to allow schools to restart in August.

Ms Spowage also calls on policymakers to get the timing of the lifting of financial support measures right.

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“All the evidence points to many small businesses having few reserves to survive at reduced levels of demand,” she says. “Lifting support too early and/or delay in the easing of restrictions, even by a matter of weeks, and the knock-on impacts across the economy, will be severe.”

She says the rate of recovery will depend on how consumers react to the easing of restrictions and that government has a role in building confidence amongst consumers and businesses – not just in terms of actual policies but clarity and consistency of message.

Steve Williams, Senior Partner for Scotland at Deloitte, said: “COVID-19 has presented businesses with their most significant and unpredictable challenges in decades, with wide reaching economic and societal implications of lockdown changing life as we know it.

“For the majority of organisations and consumers, the lockdown on non-essential parts of the global economy has left a scar on finances, with businesses and some individuals likely to emerge with a combination of higher debt and weaker financial reserves.

“What’s crucial, and as this commentary sets out, is that we give our economy the best chance of recovering quickly so that inequalities are not simply left to grow.

“Businesses across all sectors have a key role to play; they must be flexible and willing to innovative as the country adjusts to a lower growth world. Leaders must use this time to think about the organisation they want to be in the future. We must take this opportunity to change businesses for the better.”



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