The coronavirus lockdown has had a “rapid and severe” impact on the economy and jobs, with recovery not likely before 2023, Scotland’s chief economist has said.
Gary Gillespie’s report examining the consequences of the pandemic warns Scotland’s economy faces a “gradual” recovery to return pre-crisis economic output levels.
First Minister Nicola Sturgeon said the Scottish Government “is determined to do everything we can to support that process of rebuilding and recovering”, adding the report shows the importance of Government intervention.
The chief economist said modelling shows the job retention scheme as “playing a key role in reducing unemployment” since being announced by the Chancellor.
His report stresses phasing out the scheme’s withdrawal to match the recovery, alongside wider support, “is crucial in ensuring we minimise unemployment and protect and support firms” as the economy and businesses adapt “to the new norms which are emerging”.
An estimated 19% of Scottish businesses have closed during lockdown, at least temporarily, impacting more than 750,000 jobs in Scotland between those laid off, furloughed and the self-employed who are unable to work.
While the latest official labour market data suggests the unemployment rate was 4.1% in the first quarter of 2019, the rate in March was forecast to be 6.6% – approximately 186,000 people – following a 67% rise of the benefit claimant count.
The report states: “The unemployment level and rate will also be
affected by the unwinding of policy support – particularly the job retention scheme – and the extent to which sectors are able to come back to previous levels of activity.”
It adds: “The continuation of support for business to restart safely and retain employment will be critical through the recovery phase to ensure the scarring effects of this economic crisis are kept to a minimum.
“In that regard, public and private partnerships will play a key role – both in ensuring a sustainable recovery that continues to support the efforts to minimise ongoing coronavirus risks, but also to adapt to new ways of working and enable a step change in activity in many areas, such as the transition to net zero.”
Ms Sturgeon said: “Today’s publication confirms the scale of the economic crisis that we now face and, in doing that, it further underlines why government action is so important and why it will continue to be so important.
“The Scottish Government has already allocated more than £2.3 billion to help businesses and protect jobs, and that’s before we consider an important UK wide measures currently in place such as the job retention scheme.
“That kind of support is helping to mitigate some of the economic impact of this crisis, and it will continue to be vital as our businesses seek to rebuild.
Economy Secretary Fiona Hyslop called for an extension to negotiations with the EU to avoid “the further economic turmoil that would occur under a no-deal Brexit”.
She added: “These figures show in stark terms the economic damage caused by the Covid-19 pandemic.
“It is critical that we now gradually reopen the economy, following the route map out of lockdown that we have drawn up in close consultation with business organisations, trades unions and regulators.”
A UK Government spokeswoman said: “The UK Government has provided an unprecedented package of support to help Scotland and the whole of the of the UK deal with the economic fallout of the coronavirus outbreak.
“That includes paying the wages of millions of workers through job retention scheme, plus targeted support for businesses, self-employed people and individuals.
“In addition, we have committed an extra £3.7 billion to the Scottish Government to support their response in devolved policy areas.”