August update

Scotland resisting worst case economic warnings

Lego store in St James

Building blocks: the new Lego store in Edinburgh helped boost the retail sector (pic: Terry Murden)

Scotland appears to be staving off the worst of the forecasts that were made about the impact of the Covid-19 pandemic on the economy.

In the early months, there were many competing predictions – several of which featured in SCDI’s State of the Nation briefings – of the potential scale and extent of its economic impact.

There was much debate about how resilient the Scotland’s economy would prove to be under significant strain given its long-term challenges of low growth, weak productivity and inequality.

In April 2020, under the unprecedented weight of the first lockdown, Scottish GDP collapsed by nearly a fifth. Unemployment jumped from near record lows of 3.5% to nearly 5% as thousands of workers lost their jobs in the disruption that followed. A major jobless crisis seemed imminent.

The Fraser of Allander Institute, for example, would later estimate that joblessness could rise to 7.5% in 2021. It also developed a series of scenarios for Scotland’s recovery. The central scenario predicted normality could return to the economy by August 2022. The most optimistic scenario suggested Scottish GDP would recover to pre-pandemic levels only by February 2022.

So far, however, Scotland appears to be staving off the very worst of this threat, defying some of the early forecasts. Our SCDI State of the Nation briefing for August finds that Scotland’s onshore GDP increased by 0.9% in May and is now only 2.7% smaller than its pre-pandemic size. Unemployment also remains relatively steady at 4.4% with nearly half of firms intending to hire new staff.

But the seeds for future challenges are being sown with 173,100 Scots still on furlough, masking the full extent of the number of jobs at risk. Glasgow and Edinburgh are among the hardest hit cities in the UK, with levels of commuting, footfall and spending still exceptionally low.

Creating quality jobs and breathing new life into our towns and cities as part of a green recovery will be among the most important tasks facing Scotland’s economy – even once it has grown back to its former size.

David Kelly is SCDI policy manager

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