Hope rests on vaccine for declining Scots economy
Economy faces ‘greatest challenge’ (pic: Terry Murden)
Scotland’s economic growth will contract by 9.1% this year but a “high chance” of the pandemic being beaten next year could see it pick up to 8.2%.
It could take until early 2023 for it return to its pre-Covid level, according to KPMG’s latest quarterly economic outlook.
The latest analysis for this year sees a further downgrade of forecasts from the 8.1% predicted in June.
UK-wide, KPMG is forecasting an even steeper decline in GDP of 10.3% for 2020, downgraded from 7.2% predicted in June, with stronger growth of 8.4% in 2021.
Three alternative scenarios were considered for the timing of the recovery, based on potential different dates of the vaccine being approved and then rolled out in the UK – and a Brexit deal outcome.
KPMG’s base scenario assumes that a vaccine will be approved in January, immediately reducing uncertainty, and rolled out by the end of April enabling all social distancing measures to be removed.
It also assumes the UK and the EU reach an agreement on their future relationship before the end of the transition period this year.
But even just a three-month delay in rolling out the vaccine could see UK GDP growth fall to 7.1% in 2021, instead of 8.4%.
A range of risks is also considered, where the outcome will impact potential growth. They include a no deal with the EU next year and limited progress in eradicating the pandemic. If these play out, growth in 2021 could fluctuate by between 8.4% and 4% at the least.
The latest forecasting model suggests Orkney and Shetland will be hit hardest, with drops in GVA of 11.4% and 11.1% respectively. East Renfrewshire looks set to face the lowest impact, with a reduction in GVA of 7.4%.
Catherine Burnet, KPMG’s regional chairman in Scotland, said: “Our latest revised forecasts for Scotland highlight the scale of uncertainty facing the country over the coming months.
“The next six months could provide the greatest challenge as the business community wrestles with both the ‘new normal’ of a post-Covid-19 world and a potential hard Brexit.
“Across the country there appears to be some significant differences in the forecast short-term impact of Coronavirus, which raises concerns that we could face a ‘two-speed’ recovery with some regions struggling to regain lost ground.
“As vaccine research continues, the need now is for business and political leaders across Scotland to work collaboratively and set out a clear action plan to restore consumer confidence and long-term, sustainable economic growth.”