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Economic commentary

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Economic commentary

Our bi-monthly update on global, UK and Scottish economic trends and performance, drawn from a wide range of economic indicators and commentaries. Published June 2020.

Global Trends

The latest describes the world as being on a ‘tightrope’. Under their scenarios, if a second wave of the coronavirus pandemic is avoided, global economic output will fall by 6% in 2020. If there is a second wave, output could decline by 7.6%.

The OECD predict the UK could be one of the one of the worst hit economies, with output down by 11.5% in their ‘single hit’ scenario, and by 14% if there is a ‘double hit’.

365体育备用网址The UK is expected to be heavily affected by the crisis because of the significant contribution to the economy of trade, tourism, real estate and hospitality, which were badly hit by lockdown measures.

The OECD also note that the UK’s unemployment rate could rise to between 10% and 15%, and that vulnerable workers (low paid and young people) are at particular risk of job losses.

Unprecedented levels of government borrowing (trillions USD) in all advanced economies will support activity, but the increases in debt will impact growth in the medium term as governments manage repayment alongside ongoing spending commitments.

365体育备用网址Interest rates are set to remain at historic lows, including negative rates, in many areas (e.g. the Eurozone) for some time to come.

365体育备用网址There are though indications that April and May could be the low point in the downturn - there has been a recent increase in US employment and an uptick in Eurozone business surveys; however, a rapid return to growth is unlikely.

365体育备用网址Although the OECD predicts economies will begin to recover over the second half of this year and into 2021, it will take many years to return to pre-COVID-19 GDP levels, and the crisis will leave economic scars, such as potential longterm falls in living standards, high unemployment, high levels of company debt and weak investment.

UK trends

data highlights the impact on the economy of the pandemic.

365体育备用网址Economic output crashed by 20.4% in April during lockdown as government restrictions on movement dramatically reduced economic activity.

365体育备用网址Sectors that were particularly badly affected include:

  • Accommodation and food (-88%
  • Construction (-40%)
  • Arts and entertainment (-40%)

365体育备用网址Source: ONS

365体育备用网址Business surveys continue to highlight the extent of the impact COVID-19 is having on the UK economy, with lockdown measures greatly reducing (or preventing) activities for many businesses.

For example, the reported activity across the UK remained in severe decline in May.

Businesses in Northern Ireland and Scotland reported the lowest levels of activity – Scotland had the lowest rebound in activity (from April) in the UK.

365体育备用网址However, surveys generally reported the rate of contraction easing slightly in May as businesses reopened, suggesting very early signs of recovery are beginning to emerge. However, a lack of new work signals continuing challenges for many businesses.

Scottish trends

Government coronavirus business support

A significant number of Scottish businesses have benefitted from UK and Scottish Government business support, including:

  • An estimated 56,300 businesses have accessed £1.7bn of Bounce Back loans
  • An estimated 3,200 have accessed £0.75bn Coronavirus Business
    Interruption Loan Scheme
  • 628,200 Scottish employees have been furloughed through the Job Retention Scheme
  • 146,000 self-employed have claimed £425m grant support
  • Almost 75,000 business grants were awarded (£850m) through the Scottish Small Business Grant Scheme and the Retail, Hospitality and Leisure Business Grant Scheme
  • Around 2,500 businesses and 4,000 self-employed had been offered almost £104m in grants (by early June) via the Pivotal Enterprise Resilience; the Creative, Tourism & Hospitality Enterprises Hardship and Newly Self-Employed Hardship Fund

Feedback from Scottish Enterprise customers

What does this mean for Scottish businesses?

The economic impact from coronavirus will be large and will last for some time. As it is increasingly unlikely that there will be a rapid ‘v-shaped’ recovery in Scotland, and the implications for the economy and businesses will be significant. Businesses and sectors will need a range of support to boost resilience, restart and recovery.

365体育备用网址Types of support on offer to Scottish businesses including:

  • Helping businesses navigate government advice and be as prepared as possible as lockdown restrictions are eased across different phases in Scotland and the rest of the UK
  • Helping companies to access funding support – both through provision of funding schemes (e.g. PERF) and financial readiness advice and support
  • Accessing market intelligence especially from overseas - e.g. on the opening of markets, new regulations, specific overseas opportunities, new channels to market, and changing customer demands and needs
  • Support for developing new ways of doing business – including online selling and marketing, investing in the right ICT equipment – and being able to access and develop the necessary skills to deploy new approaches widely – e.g. online demonstrations and upselling services alongside products
  • Support to implement Health & Safety and social distancing requirements in ways that minimising productivity losses – e.g. support from SMAS practitioners
  • Increased demand for innovation/R&D support is evident as companies look to develop new products/processes; access to relevant funding and expertise is key to capitalise on what could be a stimulus to future growth
  • Sharing best practice to learn rapidly from other businesses
  • Support to develop local supply chains to build resilience through more local sourcing – and identify gaps in capacity in Scotland that can be filled by Scottish businesses
  • Guidance on workplace innovation and best practice as companies explore new ways of working, including supporting staff in returning to work, training in health and safety and in skills for operating in new working environments
  • Supporting investment in the environmental, low carbon and net zero aspects of recovery and the opportunities this may bring

Disclaimer

365体育备用网址We release Scotland's economic commentary bi-monthly. This commentary reflects our understanding of issues at the time of writing drawn from a wide range of credible and respected sources and should not be taken as Scottish Enterprise policy.

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