Economic growth is forecast to contract by 9.1% in 2020, according to the latest predictions.
The ongoing coronavirus pandemic has seen KPMG revise its Gross Value Added (GVA) forecast for Scotland from a 6.8% drop to a fall of 9.1%.
Looking at the whole of the UK, the accountancy firm is forecasting GDP decline of 10.3% for 2020, downgraded from 7.2% predicted in June.
However, both economic measures are expected to see a recovery in 2021 – increasing by 8.2% and 8.4% respectively – if a working Covid-19 vaccine is available by April.
With the assumption that a vaccine for coronavirus is rolled out next year, KPMG predicts that the economy can return to pre-pandemic levels by early 2023.
The forecasting model suggests that, economically, Orkney and Shetland will be Scotland’s worst-affected regions, with drops in GVA of 11.4% and 11.1% respectively.
East Renfrewshire is forecast to face the lowest impact, with a reduction in GVA of 7.4%
Edinburgh’s GVA is predicted to contract by 7.7% in 2020, while Glasgow is forecast to experience a fall of 8.6%.
Catherine Burnet, KPMG’s Scotland chairwoman, said: “Our latest revised forecasts for Scotland highlight the scale of uncertainty facing the country over the coming months.
“The next six months could provide the greatest challenge as the business community wrestles with both the ‘new normal’ of a post-Covid-19 world and a potential hard Brexit.
“Across the country there appears to be some significant differences in the forecast short-term impact of coronavirus, which raises concerns that we could face a two-speed recovery with some regions struggling to regain lost ground.
“As vaccine research continues, the need now is for business and political leaders across Scotland to work collaboratively and set out a clear action plan to restore consumer confidence and long-term, sustainable economic growth.”
Across the UK, unemployment is expected to reach 9% of the workforce in the final quarter of 2020 as the furlough scheme ends and is forecast to average 8.2% in 2021.
KPMG’s chief economist Yael Selfin added: “The pandemic has had a more significant impact on sectors that are more labour-intensive – and the recession will generate permanent change in some of them, meaning there will be a bigger effect on the labour market than the fall in GDP would imply.
“The UK government has an important role to play. Not just in continuing to provide short-term support to the economy but in readying the UK for a more productive future, including upskilling a significant part of the workforce and upgrading the UK’s telecommunications network.
“If we get this right, we could come out of this crisis with a better economy.
“While it feels like the worst of the Covid-induced economic crisis is behind us, there are still many challenges.
“There could be a second wave of infection this year, although we expect any future lockdown to be less severe – and the timing and speed of the economic recovery will be impacted both by vaccine developments and Brexit outcomes.”