Collective response as a country to eliminate this virus holds key to speed of economic recovery

This month marks 45 years since the first publication of the Fraser of Allander Economic Commentary.

Thanks to the team at the Strathclyde library, past editions are now archived online.

The back catalogue provides a fascinating real-time tracker of Scottish economic history through the eyes of past Fraser economists.

A trip back in time is especially poignant just now. It offers a reminder of the ability of our economy to bounce-back from all manner of challenges. But it also highlights the destructive power an economic downturn can have on industries, communities and families long-after growth returns.

This crisis is no different.

Figures last month showed a contraction in the Scottish economy of almost 19% in April. Since its peak in February, economic activity has fallen nearly 25%.

Much of this is a direct consequence of the lockdown. And whilst there will be some bounce-back in the coming weeks as businesses re-open, the economic crisis is only just beginning.

Employment in Scotland is already down 50,000 on this time last year. With 750,000 workers furloughed or supported by self-employment schemes, and vacancies at a record low, unemployment will rise sharply in the months to come.

Of course, we are not alone. The global economy is on track to contract by up to 8% this year.  World export orders have fallen to their lowest level on record.  Freight traffic is down 30%.

What about the outlook?  

Last week, we published our latest commentary, with the current crop of Fraser economists setting out a number of scenarios. These range from an ‘optimistic’ scenario with a relatively quick recovery by the end of 2021, through to a ‘pessimistic’ scenario where the recovery lasts to mid-2024. 

Which outcome is more likely is, at this stage, uncertain. In recent days, we’ve heard lots from government – both Holyrood and Westminster – about all sorts of plans to accelerate the recovery.

The Scottish Government have even set out a 10-point plan for the Chancellor. Indeed, no-one is spared their lecture on economic policymaking, not even the Bank of England. It would be interesting to see the reaction of Ministers should HM Treasury return such a favour!

If we can take one lesson from past recessions, it is that doing too little is typically worse for the economy in the long-term than doing too much. Long-term economic scarring means long-term damage for living standards too, particularly those least able to withstand it.   

But for all that an economic stimulus is the right thing to do, we cannot lose sight of the importance of getting the basics right – from the re-opening of schools through to the effective rollout of testing and tracking.

It would be wrong however, to think that our politicians are the only ones with the ability to shape the recovery. All of us have a role to play.

Our latest Fraser Commentary shows that the greatest risk to our economy is a ‘second wave’ of infections. It would destabilise markets, erode confidence and may even spark a private debt crisis. A further shutdown would wipe-out what is left of many businesses’ reserves, lead to a sharper spike in unemployment, and prolong the downturn.

It is understandable that there is a demand to return to ‘normal’ sooner rather than later. But if we are to look back on this episode in 45 years’ time, the greatest factor driving the speed of recovery will not be the latest new policy initiative, but our collective response as a country to eliminate this virus. Significant progress has been made since the start of the lockdown. Continuing to follow the public health advice is the best way to support our economy, not just now, but in the future.

Authors

Director of the Fraser of Allander Institute.

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