FOAI: New restrictions likely to hinder optimism for a strong economic recovery in the new year
The central outlook is still for the Scottish economy to meet pre-pandemic levels in the Spring, but Omicron casts a shadow over the speed of recovery in 2022 as restrictions are increased, according to the Fraser of Allander Institute (FOAI).
The institute, which is operated by the University of Strathclyde, said that despite the threat of the Omicron variant, and the introduction of new economic restrictions, the Scottish economy is still forecast to recover to pre-pandemic levels in the Spring of 2022.
In the Deloitte sponsored Economic Commentary, the Institute predicts growth of 6.4% in 2021 and 4.7% in 2022. The economy is now expected to get back to pre-pandemic levels in May 2022: one month later than predicted in September due to growth in the Autumn underperforming the previous forecast. However, the impact that the latest restrictions may have on the economy, particularly on the retail and hospitality sectors, will take some time to emerge.
Mairi Spowage, director of the institute, said: “The economy is in a better place than feared a year ago, underpinned by the delivery of the vaccination programme and the advancements made in understanding and treating the virus.
“As as we moved through the first half of 2021, the prospects for growth in the economy continually improved. Despite growth faltering in the Autumn due to rising prices and supply chain constraints, expectations are much better for the outlook in 2022 and beyond, compared to what was feared earlier in the pandemic.”
This quarter’s Commentary also finds the removal of the furlough scheme, has not had the negative impact on employment and unemployment that was feared. However, there are initial signs that Scotland may be recovering more slowly than the UK as a whole, with both output and earnings data lagging the UK.
Mairi Spowage continued: “Despite the threat of the new Omicron variant, we have chosen to keep our forecasts broadly similar to those we produced in the Autumn. This sees growth getting back to pre-pandemic levels in Scotland in May 2022, a little later than previously forecast, due to sluggish growth in the Autumn.
“But of course, these forecasts are very uncertain right now. The announcements made earlier this week, however necessary they may be for public health reasons, are likely to put a constraint on some businesses’ ability to make the most of the important Christmas period.
Steve Williams, senior partner at Deloitte in Scotland, added: “Over just a few days there have been many anecdotal examples of the new variant’s impact on economic activity, with businesses in retail, travel and hospitality particularly affected. During what is traditionally a very busy and important time of year for these sectors, there are reports of footfall decreasing and bookings being lost.
“However, after the past 18 months, businesses are accustomed to adapting to restrictions, so measures to check the spread of the virus will likely have less effect on activity than in 2020. Nevertheless, these latest developments are expected to have a short-term impact on growth.
“For businesses, while much is uncertain, leaders can still prepare for 2022 by prioritising broader challenges such as inclusive growth and social mobility in a way that creates opportunities, and weaves them into a long-term strategic vision. Addressing challenges such as these will be critical to any post-pandemic recovery, while climate change and sustainability will rightly remain a priority on corporate agendas for some time.”