Second virus wave could delay economic recovery until 2024
Scotland's economy may not return to its pre-coronavirus level until summer 2024 if there is a second wave of the disease, economists have warned.
A new report from experts at the Fraser of Allander Institute think tank said the "Scottish economy is now in its deepest recession in living memory''.
It added recovery could take four years in the worst-case scenario if there was another spike of cases and stringent lockdown measures had to be reimposed.
In the most optimistic scenario, assuming the easing of restrictions goes "smoothly'', it said it is possible the Scottish economy could get back to pre-crisis levels by late 2021 or early 2022.
The report comes after figures last week showed GDP in Scotland plummeted 18.9% in April.
Although the report said this fall was "unprecedented'' it added it was "broadly what was expected given the scale of the mothballing of large sectors of the economy''.
The number of Scots in receipt of the Universal Credit also rose to more than 440,000 in May - more than double the total of 185,000 recorded in the same month last year.
With more than 750,000 people in Scotland either furloughed or being supported through the UK Government's self-employment scheme, the think tank fears a possible "raft of redundancies and business closures'' when this help starts to be scaled back.
Its latest economic commentary said: "The immediate priority for many businesses is survival.
"But expect a spike in closures and job losses as firms look ahead to the rolling back of the furlough support later in the year.''
The report said Government support has provided an "invaluable safety net'' during the crisis, with "around £10 billion of funding support for the Scottish economy through additional resources for the Scottish Government and various business support schemes''.
Looking ahead, it said there is "an optimistic view that if firms survive the immediate next few weeks and the re-start of key sectors goes smoothly, the recovery may build momentum relatively quickly''.
Provided there is no second spike of infections, "economic activity could pick-up sharply as demand returns'', the report added.
But it warned the "effects of the crisis could be more significant'', saying if there is a more gradual recovery it could be "towards the end of 2022'' before economic output returns to pre-crisis levels.
The report added: "Should there be a second wave and reintroduction of more stringent restrictions, the hit to the economy will be all the greater.
"Here, the hit to livelihoods could be greater than we have seen in a generation.
"We estimate that this could mean the economy does not get back to pre-crisis levels until mid-2024.''
The think tank said it is now "vitally important to avoid a second wave of infections'' and the Scottish Government needs to develop an "effective plan for the safe return of schools to let parents return to work''.
Governments also need to "get the right balance between the easing of their support measures and the lifting of restrictions'', it said.
Fraser of Allander director Professor 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.''
Steve Williams, senior partner for Scotland at professional services firm Deloitte, said: "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.''
A Scottish Government spokeswoman said: "Our published analysis suggests that Scotland's economy faces a gradual recovery and, as we now carefully reopen, following the route map out of lockdown, we will continue to work with employers so that they can safely get back to work and help the economy on its path to recovery.
"The report of the advisory group on economic recovery was published on Monday.
"The recommendations will now be considered in detail by the Scottish Government and partners.''
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