No deal could lead to economic crash like 2008, Government warns
THE most pro-brexit part of Scotland would be the hardest hit by a no deal that would plunge the whole country into recession, a Scottish Government report has warned.
The analysis by the Office of the Chief Economic Adviser said the north-east would suffer most, as more than one-quarter of its workforce is in the sectors most exposed to no deal.
The areas include Moray, the most pro-leave local authority at the 2016 referendum, Shetland, Orkney, Angus and Aberdeenshire because of the impact on fishing and agriculture.
The analysis looked at the impact of a relatively short fall-out from no deal of a few months, and a longer shock.
It said in both cases there would be severe effects on trade, investment, exports, jobs and the economy, with Scotland rapidly pushed into a recession comparable in scale to the one after the financial crash of 2008.
It said if the UK leaves the EU next month with no trade agreement with the EU, Scotland’s GDP could fall seven per cent by the end of 2019, with its unemployment rate doubling to 8%, putting another 100,000 people out of work
Scotland’s trade with the EU would be significantly impaired as supply lines broke down, with a potential drop in exports by 10 to 20%.
Business investment in Scotland could fall by £1 billion in 2019. Sterling could suffer a 10 to 30% devaluation, pushing up import costs. Inflation could rise to 6.5% in 2020.
It said that if the economy started to recover relatively soon, growth would return but it would be slower than it would have been without Brexit.
The sectors with the greatest exposure to agriculture and fishing would be hardest hit, but Edinburgh, with 14% of its workforce from the EU, could also suffer from out-migration.
If the impact of no deal was more prolonged, and recovery slower, there could also be a credit crunch as companies struggled with cash flow and banks became reluctant to lend.
Consumer spending could also slump, leading to a slowdown in the housing market, lower trade for retailers, and more job losses.
The report concluded: “Whilst the scale of the shock is uncertain, it has the potential to push the Scottish economy into recession, with a corresponding increase in unemployment.
“If prolonged, the shock could lead to significant structural change in the economy.”
Finance and economy Secretary Derek Mackay said: “This paper confirms that all forms of Brexit will harm Scotland’s economy and result in lower household incomes.
“The economic harm of Brexit will be exacerbated if the UK Government decides to crash out of the EU without a deal. Such an outcome, represents a clear and present danger to Scotland’s economy.”