The dramatic downturn in Scotland’s economy is a measure of its success in confronting the coronavirus pandemic, according to economists at the Fraser of Allander Institute.
Their views are set out in the latest Addleshaw Goddard Scottish Business Monitor, which shows that the net number of firms experiencing an increase in business during the first quarter of this year was at its lowest level since 2009 in the wake of the last financial crisis. Overall outlook was at its most negative since the survey began in 1998.
But the report argues that the widespread shutdown of businesses in an attempt to curb infection and the resulting pain is a necessary investment in the future of the economy.
Graeme Roy, director of the Fraser of Allander Institute, said: “As we reach the end of the third week of the lockdown in our economy, the scale of the challenge facing businesses in Scotland is clearly set out in this latest Business Monitor.
“It is important to remember that the shutdown of all but essential activities in our economy is entirely the right response to the crisis both from a public health and long-term economic perspective. But the immediate consequences for individual firms and their employees are stark.
“The outlook for the next six months is the weakest we have seen since the survey began 22 years ago, with a sharp drop in employment and turnover.”
Nearly 500 Scottish businesses responded between 1-8 April to the survey which found:
However, more than 95% of businesses questioned said the Coronavirus Job Retention Scheme would be very effective or effective in supporting their survival. The scheme will allow employers to put staff they might otherwise make redundant on furlough, and be reimbursed for 80% of their wages.
David Kirchin, partner and head of corporate at Addleshaw Goddard in Scotland, said: “There is no escaping the scale of the challenge over the coming weeks and months and there is no single formula for every business to follow. But like any crisis, this one will end. Until then businesses grappling with cash-flow and other short-term issues would be advised to access the very substantial support from government and the wider business community to navigate these challenging times.”
Scottish GDP grew by 0.3% during the final quarter of 2019 and 0.7% over last year. The Fraser of Allander Institute said there would be winners and losers when it comes to putting the economy back on course.
Roy added: “In time, and once we get through the public health emergency as safely as possible, we will need to turn our attention to rebuilding. Restarting our economy, when the time is right, will require careful thought. Planning out how businesses can open up once again, under what conditions, and at what capacity, will take time. Difficult decisions will be required about which sectors and businesses to prioritise. All of this should be done as a partnership between business their employees and policymakers, with public health advice paramount.”
