Economy could take years to recover from epidemic
...as experts say Scots business may never be the same again
THE coronavirus crisis has already caused a ‘sharp economic downturn’ in Scotland with fears it could take years to recover, a leading think tank has warned.
The Fraser of Allander Institute said the economy that emerges on the other side of the pandemic will look very different.
It said many businesses hoped the impact of Covid-19 would be a ‘V-shaped’ recession, with the economy bouncing back as restrictions are lifted. But the scale of the current lockdown, along with the fact certain measures will last for months, means a longer downturn is considered more likely.
Analysts said the sharp reduction in ‘social spending’ will hit hotels, cafes and restaurants badly – grim reading for the tourism and entertainment sectors, which make up 13 per cent of the Scottish economy and 19 per cent of employment.
In a report on the economic impact of coronavirus, the institute said the expected recession could have ‘scarring’ effects lasting years, with rural communities particularly exposed as many people have jobs connected to tourism, it added.
Universities that rely on foreign students could also endure a reduction in demand in the coming years, the report found, and jobs could look very different even after the economy recovers, with ‘more home working and greater use of technology’.
While the think tank said it is still too early to tell the exact extent of the economic impact, the institute suggested it could ultimately lead to a ‘new social partnership between the state and business’.
The report notes: ‘The crisis comes on the back of three and a half years of Brexit uncertainty, which has stalled investment and eroded confidence.’
Institute director Professor Graeme Roy said: ‘The large-scale mothballing of our economy is unlike anything we have seen since the Second World War.
‘Businesses and policymakers always knew a global pandemic represented a major risk to our highly integrated global economy. But the pace at which this crisis has escalated has caught many off-guard.’
He added: ‘Assuming that the public health emergency will pass in the coming months, the hope of many is the economy should come out the other side with only a limited hit to its long-term productive capacity. But this is looking increasingly overly optimistic. The scale of the shutdown in our economy is so large it will take months, if not years, to recover.
‘The economy that emerges from this, from the shops on our high street through to day-to-day working practices, is likely to look quite different.’
Mairi Spowage, the institute’s deputy director, said: ‘Whilst there remain issues to be worked through, including how some of the government support schemes will operate in practice, so far the policy response has been well received. But things are clearly escalating quickly and changing day-by-day. As with all previous recessions, some individuals, businesses and local communities will be impacted more than others.’
John Macintosh, Tax Partner at Deloitte, said: ‘Covid-19 is a truly global crisis and its economic implications will be felt by all.
‘Businesses across Scotland, the UK, and the rest of the world are, for one of the first times in history, facing many of the same challenges.
‘However we will get through this and if there was ever a time for the business community to pull together, to share skills, knowledge and resources, it is now.’
The report also highlights the impact on jobs and household incomes, with many families lacking sufficient savings to cover their bills for an extended period.
The Institute points out only 42 per cent of Scottish households in the bottom ten per cent of earnings would be able to cover one month of their regular income from savings. Around three-quarters of those households would not have a sufficient buffer if they had to forgo regular income for six months.
‘Caught many off-guard’