Scale Of Economic Challenge In Scotland Highlighted

6th June 2020

Scotland's economy faces a gradual recovery from the coronavirus (COVID-19) crisis, according to updated modelling published today.

Highlighting the scale of the challenge facing the nation, analysis by Scottish Government Chief Economist Gary Gillespie suggests that economic output may not recover to pre-crisis levels until the start of 2023.

However, the report also highlights how Government support has helped to mitigate the worst economic effects of the virus.

It sets out that:

economic activity in April fell to historic lows as businesses were required to close to prevent the spread of COVID-19

activity is expected to pick up in the coming months as businesses prepare for the gradual reopening of the economy. However, significant uncertainty in the economic outlook remains

unemployment is rising from its pre-COVID-19 lows and could increase to more than 10% this year, although the Job Retention Scheme is helping to contain this

Economy Secretary Fiona Hyslop said:"These figures show in stark terms the economic damage caused by the COVID-19 pandemic.

"I am aware that many people will be deeply concerned about their livelihoods as we start to emerge from lockdown, and the Scottish Government has been working tirelessly to keep businesses afloat and ensure as few people as possible lose their jobs.

"We have offered more than £2.3 billion to businesses to support them through this crisis, with £104 million having been awarded from the Scottish Government Business Support Fund alone, helping more than 2,500 businesses and 4,160 self-employed people in the space of just a month.

"It is critical that we now gradually reopen the economy, following the routemap out of lockdown that we have drawn up in close consultation with business organisations, trades unions and regulators. During this critical phase we will continue to work with employers so that they can safely get back to work and help the economy on its path to recovery.

"Given the scale of the challenge being faced by the Scottish economy in dealing with this crisis, the last thing our businesses need is the further economic turmoil that would occur under a no-deal Brexit. That is why we have repeated our calls for the UK Government to agree an extension to the transition period."

Monthly Economic Brief

Overview • This Monthly Economic Brief provides a summary of latest economic data for Scotland. It shows the scale of the economic crisis that has been unfolding since the coronavirus outbreak and the unprecedented impact on business and consumer activity during the past 10 weeks of lockdown. • The impact on the economy and the labour market has been rapid and severe. Latest business surveys have shown record falls in business activity in April, reflecting that an estimated 19% of businesses have been temporarily closed in Scotland. We also estimate that these closures (and wider knock on effects) have impacted over 750,000 jobs in Scotland between those furloughed and the self-employed that are unable to work.

• The latest official labour market data for Scotland still broadly reflects the pre-COVID-19 position with the unemployment rate (albeit rising) at 4.1% in the first quarter. We know from the sharp rise in the claimant count for Scotland in April, which was up nearly 70 per cent on the month, that the unemployment rate will be closer now to 7 per cent. • This rise in the claimant count is significant (around 75,000 higher than in March) and will impact young workers and those in the affected sectors. The unemployment level and rate will also be affected by the unwinding of policy support (particularly the Job Retention Scheme) and the extent to which sectors are able to come back to previous levels of activity. • Our updated economic modelling suggests a longer recovery phase is increasingly likely given the loss of productive capacity and the change in market conditions for many sectors of the economy. • While lockdown measures in Scotland have continued throughout May, the latest business turnover data for April which is published today, highlights significant falls in turnover which is likely to reflect the low point for output in the economy during the lockdown period. The gradual phased reopening of previously closed parts of the economy has seen some activity pick up since then. • The continuation of support for business to restart safely and retain employment will be critical through the recovery phase to ensure the scarring effects of this economic crisis are kept to a minimum. • In that regard, public and private partnerships will play a key role - both in ensuring a sustainable recovery that continues to support the efforts to minimise ongoing coronavirus risks, but also to adapt to new ways of working and enable a step change in activity in many areas, such as the transition to net zero. • Finally, the pace and scale of the contraction in economic activity in Scotland reflects both the measures required to deal with the public health crisis and the global impact of the pandemic. The policy response has been unprecedented with over 10 million workers supported directly by the State across the UK, which has resulted in record borrowing levels to finance this support. The pace of unwinding this support and dealing with the debt overhangs will be crucial in influencing the path of the recovery. • As our modelling shows, the Job Retention Scheme is playing a key role in reducing unemployment. Phasing the withdrawal of this support to match the recovery, alongside wider support, is crucial in ensuring we minimise unemployment and protect and support firms whilst the economy transitions and markets and business places change to the new norms which are emerging.

The Monthly Economic Brief , published by the Office of the Chief Economic Adviser, provides an update on the latest impacts that COVID-19 is having on Scotland's economy.