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.
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.
The latest Commentary also looks at the progress the country has made in 2021.
Director of the Institute, Mairi Spowage, 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 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.
This economic context provided the backdrop to the Scottish Budget last week. The first Budget of this new session of parliament, and Kate Forbes’ third Budget, saw some big choices made.
The health budget will increase by a huge £1.8bn to deal with the pandemic’s legacy on the health service, longer-term demographic change, and other commitments to address specific issues on drugs deaths and mental health.
The first stage of reforms to social care, following on from the Feeley review, could be seen in additional resources (£170m) for local government to pay a higher wage floor to social care workers, an additional £200m to support health and social care integration, and £124m to begin the expansion of social care access.
The government’s flagship policy – not only for this year but also for the parliament as a whole – is clearly the Scottish Child Payment. This is genuinely a bold and distinctive policy. The doubling of the payment from the originally planned £10 per week to £20 per week means that it will make a substantial contribution to the government’s ‘mission’ to tackle child poverty.
This quarter’s commentary also includes two perspectives:
- Perspective 1 – “Scotland’s Budget Report 2021” David Eiser, Calum Fox, Stuart McIntyre, and Mairi Spowage
- Perspective 2 – “The impact of the new Northern Ireland protocol: can Northern Ireland enjoy the best of both worlds?” Geoffroy Duparc-Portier and Gioele Figus