Covid-19 - Quantifying The Impact On The Scottish Economy

7th April 2020

Fraser of Allander Institute - April 7, 2020.

A lengthy article on the possible effects on the Scottish economy. Only the introduction here with a link to the full article at the bottom of the page. The article looks at the various sectors of the economy.

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As the full lockdown in Scotland begins its third week, we are all getting used to the restrictions on social distancing, and, for those of us lucky enough to be working from home, new ways of working.

The focus of course remains as it should on the public health crisis. Large parts of the economy have been effectively mothballed in order to support that effort. Other parts have had to cope with significant restrictions placed on them.

A question we have been asked is to try to quantify the impact on the economy, both in the short term and in the long term.

We have avoided - and will continue to avoid - providing an exact forecast for what might happen to the economy over the next year or so. There is simply too much uncertainty around both the virus itself and the response of the economy.

What we will continue to do is to walk through the avenues through which the economy might be impacted, and to highlight the scale of the challenge.

In previous articles, we have discussed the possible long-term effects. In this blog, we discuss the possible scale of the short term hit to economic output in Scotland if the current restrictions were to continue for (say) a three-month period, in some form.

We do this through two channels:

First, we look at the relative scale of different sectors in the Scottish economy to see how changes might impact upon the overall level of activity;

Second, we draw on our emerging evidence and intelligence from businesses and other sources - including from our own forthcoming Scottish Business Monitor - to get a handle on the scale of the drop-off in demand we're seeing reported.

This enables us to provide a high-level assessment of the impact of the current lock-down on day-to-day activity in Scotland. In this regard, it is important to focus upon the scale and direction of travel rather than any point estimate.

We estimate that if similar restrictions continue for a 3-month period, that Scottish GDP could contract by around 20-25%.

It is important to remember that this is NOT necessarily an exact prediction for growth in (say) Q2 2020.

This is both because (i) we do not yet know how long the restrictions will last and whether their nature will change (if the nature of the restrictions change, the impacts could be very different) and (ii) it is likely that large falls in output are spread over 2 quarters (both Q1 and Q2), given the restrictions began in March. Rather, it gives us a feel for the unprecedented nature of the likely impact on the economy.

Full article HERE