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Economic commentary

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Economic commentary

Our bi-monthly update on global, UK and Scottish economic trends and performance, drawn from a wide range of economic indicators and commentaries. Published August 2020.

Global trends

Updated IMF forecasts indicate a deeper recession in 2020 and a shallower recovery in 2021 for both the global economy and most countries.

Global economic output is forecast to fall by 4.9% in 2020 due to the impact of COVID-19 in the first half of the year being bigger than anticipated.

The UK economy is projected to be among the worst affected countries, falling by 10.2% - slightly better than Spain (-12.8%) and France (-12.5%) but worse than Germany (-7.8%).

The IMF also downgraded its outlook for the US to -8.0% but pointed to furloughed workers returning to work in May as evidence activity may have bottomed in April. Recent events, however, suggest the rebound in the US is unlikely to continue unabated.

China is the only major economy predicted to grow in 2020 (+1.0%), after most of the country had reopened by early April.

Global recovery is also projected to be more gradual than previously forecast due to a range of factors including social distancing persisting into the second half of 2020 and lower productivity levels as businesses ramp up workplace safety practices.

The IMF again highlighted considerable uncertainty around its 2021 outlook due to:

  • The unknown length of the pandemic and potential lockdowns
  • Possible voluntary social distancing, which will affect spending
  • Any lasting damage from firm closures and people leaving the workforce
  • The impact of changes to global supply chains, which will affect productivity and costs as companies seek to improve their resilience

Source: IMF

UK trends

UK GDP data highlight the ongoing economic impact of COVID-19. UK economic output fell by 20.4% in Q2, confirming the UK is in its first recession for 11 years (following a 2.2% drop in Q1).

Sectors that have been particularly badly affected are those most exposed to government restrictions – e.g. Accommodation & Food Services (-86.7%) and Arts, Entertainment & Recreation (-44.5%).

More positively, as government restrictions began to ease, there has been some pick-up in economic activity – e.g. monthly GDP grew by 2.4% in May and 8.7% in June.

Sectors that were particularly badly affected include:

  • Accommodation and food services (-86.7%)
  • Arts and entertainment (-44.5%)
  • Construction (-35%)

Source: ONS

UK business surveys continue to highlight signs of recovery as lockdown measures ease.

For example, the NatWest Regional Business Activity Index reported almost all UK regions saw strong increases in business activity in July.

Recovery in Wales and Scotland, however, has been slower. Scotland, with a later easing of restrictions, was the only nation or region of the UK not to see growth in July.

More widely, businesses acknowledge the post-COVID-19 economic environment will tend to be characterised by weak demand and ongoing workplace practice challenges. 

Scottish trends

Government coronavirus business support

A significant number of Scottish businesses have benefited from UK and Scottish Government business support, for example:

Feedback from Scottish Enterprise customers

What does this mean for Scottish businesses?

The Scottish economy appears to be stabilising after facing an unprecedented shock from COVID-19. However, the road to recovery will be challenging. Businesses and sectors will need to adapt and react regularly and quickly and will need a range of support interventions to boost resilience and recovery.

Types of support on offer to Scottish business including:

  • Helping businesses navigate government advice and be as prepared as possible to respond to opportunities as lockdown restrictions are further eased across Scotland and the rest of the UK
  • Helping companies to access funding support – both through provision of funding schemes and financial readiness advice
  • Accessing market intelligence, especially from overseas - e.g. on the opening of markets, new regulations, specific overseas opportunities, new channels to market, and changing customer demands and needs
  • Support for developing new ways of doing business – including online selling and marketing, investing in the right ICT equipment – and being able to access and develop the necessary skills to deploy new approaches widely – e.g. online demonstrations and upselling services alongside products
  • Support to implement Health & Safety and social distancing requirements in ways that minimises productivity losses – e.g. support from SMAS practitioners
  • Increased demand for innovation/R&D support is evident as companies look to develop new products/processes; access to relevant funding and expertise is key to capitalise on what could be a stimulus to future growth
  • Sharing best practice to learn rapidly from other businesses
  • Support to develop local supply chains to build resilience through more local sourcing – and identify gaps in capacity in Scotland that can be filled by Scottish businesses
  • Guidance on workplace innovation and best practice as companies explore new ways of working, including supporting staff in returning to work, training in health & safety and in skills for operating in new working environments
  • Supporting investment in the environmental, low carbon and net zero aspects of recovery and the opportunities this may bring
  • Support to implement greater automation and develop the necessary skills to maximise productivity gains, including multi-skilling existing staff

Disclaimer

We release Scotland's economic commentary bi-monthly. This commentary reflects our understanding of issues at the time of writing drawn from a wide range of credible and respected sources and should not be taken as Scottish Enterprise policy.

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