Economists warn of ‘long-term scarring’ from pandemic

Katrine Bussey, PA Scotland Political Editor

Scotland’s economy will suffer “long-term scarring” from the coronavirus pandemic, experts have warned.

The Scottish Fiscal Commission (SFC) does expect the economy to “bounce back very substantially” in 2022, as vaccinations allow for lockdown restrictions to be lifted, but it also forecasts a lasting impact from the pandemic.

It said Scottish GDP will not return to its pre-coronavirus levels until 2024.

It also anticipates that growth in 2025 will be 1.7% – with commissioner Professor David Ulph saying this is “4% below where we expected it to be from our forecast a year ago”.

Speaking at a virtual briefing, he said: “We expect Covid to have long-lasting effects on the economy.

“We think it will be 2024 before GDP returns to the level it was at before the pandemic, and we expect unemployment to remain elevated over much of this period.”

The SFC is currently forecasting GDP growth of 1.8% in 2021 – after falling by 10.7% last year.

It then anticipates further increases of 7.5% in 2022 and 1.7% in 2025.

Professor Alasdair Smith, a fellow member of the SFC, said: “We’re forecasting from quarter two in 2021 onwards the economy is going to begin to recover, and then in 2022 with most of the Covid-related restrictions lifted, the economy will bounce back very substantially.

“But our long-term forecast for Scottish GDP is significantly lower than the forecast than we made in February 2020.”

He said that is partly because they expect the number of people coming to live and work in Scotland to drop.

But Prof Smith added: “The big economic effect that goes into our more pessimistic view of long-term GDP is that we expect the pandemic will have a long-term scarring effect.

“There will be economic activities, maybe even whole parts of the economy, that shut down in the 2020 lockdowns and which will not all recover.

“Some businesses will close and not reopen, and that kind of restructuring of the economy takes a long time to recover from.”

Young people just starting out in their careers could be worst hit by the long-term impact, he added.

Prof Smith said: “Perhaps the most important scarring effect is the scarring effect on the labour market, where young people who have difficult labour market experiences, who struggle to get work, have poor employment records at the start of their careers, and all the evidence is that that has long-term negative effects on those people’s economic prospects as they become older.

“We see this in many recessions, it is the young people just coming into the labour market at the time of the recession who bear quite a lot of these long-term scarring effects.”

From Our Partners