Scotland facing 'severe economic downturn'

Scotland is facing the “most severe economic downturn in modern times” as a result of coronavirus but experts said recovery from the pandemic could mean “the future may well be a lot brighter”.

While the Scottish economy is forecast to shrink by 6.8% in 2020, KPMG’s Scotland regional chairwoman Catherine Burnet said the financial services firm expects a “partial recovery” in the second part of the year as more restrictions are lifted.

The decline in gross value added (GVA) in Scotland is slightly less than the fall of 7.2% forecast for the UK but Aberdeen and Aberdeenshire are expected to endure a greater hit, with drops of 8.6% and 8.5% predicted respectively.

West Lothian is forecast to do best, according to KPMG, with a predicted 5% economic decline in 2020.

With uncertainty about when a vaccine will be available, its economic modelling looked at four different scenarios.

Ms Burnet said: “Considerable uncertainty remains around the timing of a vaccine, which will impact the timing and speed of the recovery as well as the extent of any permanent damage to the economy.

“That said, there are some tentative signs of a pick-up in activity and we expect to see a partial recovery in the second half of this year as the gradual easing of restrictions brings light to more corners of the economy.

“However, a full resumption of activity is unlikely until a vaccine or effective treatments for Covid-19 is found.”

“We all need to adjust to a new future, not just to the current recession, and make the most of the hand we’ve been dealt to build something better for us all.”
Catherine Burnet, KPMG’s Scotland regional chairwoman

Ms Burnet added: “The pandemic will leave a lasting mark on the economy.

“We all need to adjust to a new future, not just to the current recession, and make the most of the hand we’ve been dealt to build something better for us all.

“That could be doing more to help the environment, investing more in our essential workers, or matching our universities with local businesses to improve regional productivity.

“If we get this right, the future may well be a lot brighter.”

Meanwhile, the UK unemployment rate is forecast to grow to 8.6% this year, then rise again to 11% in 2021.

It comes as figures showed a 63% increase in the number of Scots claiming unemployment benefits between March and April – with this slightly lower than the 66% average increase across the UK

James Kergon, senior partner at KPMG UK in Glasgow, warned “the gradual winding down of the job retention scheme may well result in a sudden change in fortunes for many workers throughout Scotland”.

But he said the country’s economy having “diversified significantly over recent years” should help mitigate the impact from those sectors likely to be hardest hit, such as tourism and hospitality.

Speaking about the effect on the north-east of Scotland, Martin Findlay, senior partner at KPMG UK in Aberdeen, said the area was “already facing major economic challenges” before lockdown as “the energy sector battled with oil price fluctuations and a global effort to move towards significant climate reduction targets”.

He added: “The huge decline in global demand for energy during the pandemic has significantly impacted producers and, consequently, the supply chain.

“Companies are facing the prospect of significant headcount reductions or restructuring.

“However, there is always a glimmer of hope. We’ve been here before and Aberdeen, more than any other Scottish city, has become accustomed to the big rises and falls.”