'Economy could get worse as Covid-19 recovery takes years'

Significant parts of Scotland’s economy will face “worsening conditions” before coronavirus restrictions are eased later this year, business leaders have warned.

Tim Allan, president of the Scottish Chambers of Commerce (SCC), said after many firms suffered the “most challenging year in living memory” in 2020, things could get worse still for some.

He warned of a recession and jobs crisis caused by the pandemic “which will likely takes years to recover from”.

Meanwhile Mairi Spowage, deputy director of the Fraser of Allander Institute economic think tank, said joblessness is likely to “rise significantly” when the UK Government’s furlough scheme is wound up at the end of April.

The latest SCC quarterly economic indicator, which looked at the final three months of 2020, showed business confidence in many sectors was still negative.

A total of 365 companies from across Scotland took part in the research.

Mr Allan said: “We were hoping 2021 would be a better year than 2020 but it seems it is always darkest before the dawn.

“We fear that restrictions to prevent the spread of the new variant of the virus will continue to destroy more jobs and businesses, unless Government support can ease the impact of closures and deliver an environment to enable economic recovery.”

The tourism sector, a key part of Scotland’s economy, had “fragile levels of confidence”, the latest report said, with a negative net balance of -62%.

The quarter-four results show almost nine in ten firms (89%) reported a fall in sales compared to the second quarter of 2020.

The sector was also hit by “significant falls” in investment, with more than three-quarters of firms reporting staffing levels had remained the same or been reduced.

In addition to this, more than three-quarters of tourism firms reported falls in cashflow and profits, with future expectations described as making for “bleak reading”.

In the retail and wholesale sector, confidence “remains subdued”, according to the report, with a net balance of -9%.

In the construction industry, confidence “remains suppressed at -6%”, with almost half (46%) of firms reporting a further fall in total sales in the period October to December.

However in manufacturing, confidence was positive for the first time since the second quarter of 2019 at +2%, the report said.

Looking ahead, Mr Allan said: “Investment, particularly in green jobs and energy transition, will be key if the economy is going to be built back better and sustainably.

“For this to happen, governments at all levels must be prepared to work hand in hand with the business community to attract and focus investment on where it will have the greatest impact.”

Ms Spowage said the economic survey shows the hospitality and tourism industries have been “badly impacted, with further lockdown measures likely to cause more hardship for the industry”.

She added: “Other industries, such as construction, have been able to adapt to the restrictions they face and operate almost at full capacity, but possible announcements on further restrictions for this sector are likely to act as a new blow.”

With the Scottish Government due to announce its draft budget for 2021-22 on January 28, Ms Spowage said this would take place against “significant uncertainty around the economic and health outlook”.

The economics expert said: “Businesses are likely to hope for a range of measures in the form of continued Government support and practical proposals to stimulate economic recovery.”

A Scottish Government spokeswoman said: “Since the start of the pandemic Scottish Government support for business has reached almost £3bn – more than a third of our total coronavirus funding, demonstrating our commitment to provide as much help as we possibly can to our businesses.

“Additional support for hospitality, retail and leisure businesses will be available this month, in some cases doubling or tripling the amount of support we are providing.

“Businesses already struggling under the burden of Covid-19 are now faced with dealing with the economic consequences of Brexit. As a responsible government we are doing everything we can, but we cannot avert every negative outcome.

“Our sector-led recovery plans are crucial to help us protect jobs as we work with industry, trade unions and other stakeholders to chart the way forward. So far the construction, food and drink, manufacturing and tourism sectors have published plans.”