Coronavirus could see economy shrink by more than 5%

The impact of the Covid-19 virus is expected to see the UK economy contract by 2.6% in 2020, according to KPMG UK’s latest quarterly economic outlook.

The report, published today, warns a protracted outbreak could result in a more severe impact than the downturn experienced after the financial crash in 2008-09.

In the analysis, the economy is expected to recover in the second half of next year.

KPMG’s main scenario assumes the public health measures put in place around the world stem the rise in the number of cases by the summer.

In this case, it is expected that the economy remains flat in the second half of the year with a strong recovery in the first half of 2021, as uncertainties around the pandemic dispel.

This would see UK GDP fall by 2.6% this year, then grow by 1.7% in 2021.

However, if the pandemic persists until the second half of next year, GDP could contract by 5.4% this year and by another 1.4% in 2021.

With so much uncertainty about how coronavirus will develop in the weeks and months ahead, KPMG’s latest forecasts are based on a range of scenarios.

However, even in its main one, the effects of the pandemic on global economic growth, consumer spending and business investment in particular, will still be highly significant.

Catherine Burnet, senior partner at KPMG UK in Scotland, said: “The latest economic outlook data highlights the scale of the challenge facing businesses across Scotland.

“Fiscal measures and immediate relief action from the Scottish and UK governments have gone some way to help mitigate some of the damage, but there’s widespread acknowledgement that more action will be needed in the coming months to keep the economy moving.

“The business community also needs to work together more collaboratively than ever before to ensure we’re playing our role in supporting employees, customers and wider society.”