The Scottish economy could take until 2024 to fully recover the output it has lost during the coronavirus crisis, according to the latest Economic Commentary by the Fraser of Allander Institute at the University of Strathclyde.
The report said the Scots economy “is now in its deepest recession in living memory.”
The Institute pointed out that whilst 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’,” said the Institute.
The report 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,” said the Institute.
“In the pessimistic scenario, it could be 2024 before a ‘new normal’ is reached.”
The Institute also pointed out that even when the economy returns to growth, the underlying structure of Scotland’s business base will be altered forever.
Institute director Graeme Roy 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.”
Steve Williams, Senior Partner for Scotland at Deloitte, said: “COVID-19 has presented businesses with their most significant and unpredictable challenges in decades, with wide reaching economic and societal implications of lockdown changing life as we know it.
“For the majority of organisations and consumers, the lockdown on non-essential parts of the global economy has left a scar on finances, with businesses and some individuals likely to emerge with a combination of higher debt and weaker financial reserves.
“What’s crucial, and as this commentary sets out, is that we give our economy the best chance of recovering quickly so that inequalities are not simply left to grow.
“Businesses across all sectors have a key role to play; they must be flexible and willing to innovative as the country adjusts to a lower growth world.
“Leaders must use this time to think about the organisation they want to be in the future.
“We must take this opportunity to change businesses for the better.”