Scottish economy could be back to where it was ‘by end of 2021’

Senior economists claim rebound could be much quicker than anticipated – but only if a vaccine is rolled out by April

A study from KPMG predicted that, while Scottish growth would fall by 9.1 per cent in 2020, it is likely to rebound to almost the same level by the end of next year – if a vaccine is found.

The report’s base scenario assumed a vaccine would be found in January and introduced widely by next April.

However, the study found that people on Scotland’s islands could be harder hit during the looming financial crisis than other areas of the country due to their reliance on tourism and the hospitality sector. The report said that Orkney and Shetland would suffer drops in gross value added (GVA) of 11.4 per cent and 11.1 per cent respectively.

KPMG’s regional chairwoman in Scotland, Catherine Burnet, said: “A lot of it is linked to consumer confidence. It has been an incredibly different recession because of the fact the impact of it has not been on one particular sector – there has been a different impact in different sectors.

“It is not like the last crisis, where it began with the banks. However, it has affected the whole economy. At a point of time in March, it impacted all sectors. Once a vaccine has been found and we return to a normal work environment, that will equally impact all sectors.”

If a vaccine is found and distributed in the first half of next year, 2021’s GVA is expected to reach 8.2 per cent.

Ms Burnet warned that sectors which have been hit hardest, such as hospitality and tourism, were likely to find it harder to recover.

A study published last week by Edinburgh University Business School warned that half of all hospitality businesses and 90,000 jobs could be lost in Scotland if there is a second lockdown.

Ms Burnet said: “Looking at areas such as travel, where you are very dependent on consumer confidence and people being out and about and utilising your services – and when we look at the breakdown regionally, we do see differences where areas are very reliant on tourism and don’t have a broader spread in their economy, that is where the problem is.

“The island economies are not totally reliant on tourism but they do tend to have a narrower range of sectors.

“However, if businesses look to take advantage of some of the learnings of the pandemic, whether it’s their ability to use digital, use different ways of working, they could come back differently. I don’t think overall we will have growth like last year, we will just be back to where we are now.”

Ms Burnet claimed that the pandemic could have acted as a practice run to prepare many businesses for a no-deal Brexit. However, UK-wide, the report said that, if no deal is made, growth next year could be as low as 4 per cent.

She said major changes to companies’ supply chains forced upon them as a result of global lockdowns could stand them in good stead if a trade deal is not agreed before the end of the year.

She said: “I think what Brexit is doing is looking at the situation we’re in and adding another layer of risk and another layer of complexity, which businesses have to manage.

“However, I think a lot of that mindset of change was actually helpful. One of the things that focused on was the supply chain. That was disrupted quite considerably during the pandemic, so it is something a lot of businesses have looked at already in some detail, so that will affect how they will look at how Brexit will affect their supply chain.”

Mairi Spowage, deputy director of the Fraser of Allander Institute, warned that a no-deal Brexit would add further pressure to Scotland’s manufacturers and said that investment in research and development was likely to grind to a halt.

Stuart MacKinnon, spokesman for the Federation of Small Businesses Scotland, said that small businesses would also be affected by the prospect of a no-deal.

Nick Stamenkovic, senior economist at Royal Bank of Scotland, said he was not optimistic that a deal would be done.

And James Withers, chief executive of Scotland Food and Drink, said: “Two thirds of the food exported by Scotland overseas goes to the European Union. That’s what makes Brexit really scary.”