Recession ‘worst in living memory’

FRASER OF ALLANDER: Pessimistic scenario shows it takes Scottish economy until 2024 to recover lost output

The Scottish economy is now in its deepest recession in living memory, according to the latest economic commentary by the Fraser of Allander Institute at Strathclyde University.

The institute said that while the depth of the collapse in GDP is largely artificial and entirely due to the lockdown, what matters is how quickly activity bounces back once the restrictions are lifted.

All signs are however, that there will be some scarring and it will take some time before the economy recovers to a “new normal”.

The commentary, published today, considers a range of scenarios from a more optimistic scenario where confidence builds momentum, through to a more pessimistic scenario which includes a second wave of infection.

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 could be 2024 before a “new normal” is reached.

The institute also points out that even when the economy returns to growth,

“It is only once we switch the economy back on that the crisis will hit home with a raft of business closures likely. PROFESSOR GRAEME ROY

the underlying structure of Scotland’s business base will be altered forever.

Professor Graeme Roy, director of the institute, said: “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.

“In looking to the future, there is one important take-away from all this.

“Yes, there are debates to be had about the nature of growth, how it is distributed, and its sustainability.

“But the importance of a prosperous economy for our collective ‘wellbeing’ – one that provides financial security for families, creates opportunities for our young people and supports innovative and vibrant businesses – cannot be overestimated.”