Economic recovery 'at risk over Covid restriction uncertainty'

Hopes for Scotland’s economy to bounce back rapidly to its pre-pandemic levels are dwindling amid uncertainty around future Covid-19 restrictions, a report has shown.

Research done by the Scottish Chamber of Commerce (SCC) found record Omicron cases meant business growth and confidence took a hit due to increasing cost pressures and caution over future investment and employment.

SCC’s president Stephen Leckie said the report shows Scotland’s economic recovery is “clearly at risk.”

Key findings for the fourth quarter of 2021 showed certain sectors, including construction and retail, have started to experience recruitment difficulties, with the end of the furlough scheme having an impact on labour shortages.

Businesses including the manufacturing, retail and tourism sectors reported a decline in profitability with negative net balances for both cashflow and profits, both of which are down on the previous quarter.

The research also revealed widespread concern from all sectors taking part in the survey – construction, financial and business services, manufacturing, retail and wholesale and tourism – over inflation rising to 5.1%, its highest rate in ten years.

The report read: “Rampant inflation is now starting to outpace wages and if this imbalance continues to increase further in 2022, real household incomes will start to be affected, reducing consumer spending and weakening Scotland’s overall economic activity.”

Overall export growth remains weak, the research found, with the impact of Brexit continuing to lead to delays, certification challenges, and increased shipping costs – all of which are intensified by the wider impact of the pandemic.

While the findings showed a rise in business confidence due to research being done prior to restrictions being introduced in December, this is largely anticipated to have plummeted again, the report said.

Commenting on the findings, Mr Leckie called on the Scottish Government to offer more economic support to businesses as the country has been told to “live and work with Covid”.

“It’s vital that the Scottish Government develops an economic recovery plan, in collaboration with business, which allows the economy to reopen fully and ends the continuous threat of a return of restrictions, allowing businesses to make a comeback in the months ahead,” he said.

“Business confidence continued to rise in the past quarter, however, this remains highly volatile as the Omicron variant triggered the return of Covid-19 restrictions, plunging Scotland’s businesses back into a spate of economic limitations and curtailments.

“The continued strong return to economic growth many businesses might have expected in the next quarter is now clearly at risk, and the recovery could now take longer than hoped for due to continued uncertainty over what economic deterrents are likely to remain in place and for how long.”

Mairi Spowage, director at the Fraser of Allander Institute, an independent research unit and part of the Department of Economics at the University of Strathclyde, said Omicron’s emergence led to a “dent in the optimism” many businesses felt about growth prospects for 2022.

She said Scotland’s recovery may be “lagging behind the UK as a whole”, adding: “The impact on employment and wages in the North East stands out as a particular concern, given the importance of high-wage oil and gas jobs in that region.”

“What is clear is that we are not past the point where Government support for various sectors is likely to be required in order to reduce long-term scarring on the economy,” she said.

However, she said that despite growth faltering in the autumn due to rising prices and supply chain constraints, expectations are still “much better for the outlook in 2022 and beyond, compared to what was feared earlier in the pandemic.”

“The removal of the furlough scheme, based on the evidence we have seen to date, has not had the negative impact on employment and unemployment that was feared,” she added.

A Scottish Government spokesman said: “Scotland’s economy is recovering strongly and in October output was just 0.4% below the pre-pandemic level of February 2020.

“To date, we have spent almost half a billion pounds more in support of businesses than the funding we received from the UK Government for that purpose.

“Since the start of the pandemic, businesses have benefited from more than £4.4 billion in support from the Scottish Government.”