Omicron’s emergence has increased uncertainty about optimistic forecasts that Scotland’s economy will be able to recover to pre-pandemic levels by spring, the Fraser of Allander Institute has said.
Economists from the University of Strathclyde business school are now predicting the economy will get back to its pre-pandemic size by May but they warn that the impact of the emergent coronavirus variant and new restrictions could jeopardise the speed of recovery.
In the Fraser of Allander Institite (FAI)’s latest economic commentary, it reports that “expectations are much better for the outlook in 2022 and beyond” compared to forecasts earlier in the pandemic.
However, the recent outbreak of Omicron, the speed of its spread and the re-imposition of restrictions may hamper economic recovery, it suggests, citing the hospitality and retail sectors at particular risk.
The research institute is forecasting growth of 6.4% in 2021 and 4.7% next year although they cite both output and earnings data to suggest Scotland’s economic recovery could be lagging behind other parts of the UK.
Looking at political policy decisions, the FAI report that the ending of the furlough scheme has not had a widespread or damaging impact on employment levels some had predicted.
She added: “Despite the threat of the new Omicron variant, we have chosen to keep our forecasts broadly similar to those we produced in the autumn.
“This sees growth getting back to pre-pandemic levels in Scotland in May 2022, a little later than previously forecast, due to sluggish growth in the Autumn.
“But, of course, these forecasts are very uncertain right now.
“The announcements made earlier this week, however necessary they may be for public health reasons, are likely to put a constraint on some businesses’ ability to make the most of the important Christmas period.”
Steve Williams, a senior partner at Deloitte in Scotland who sponsor the economic commentary, said: “Over just a few days there have been many anecdotal examples of the new variant’s impact on economic activity, with businesses in retail, travel and hospitality particularly affected.
“During what is traditionally a very busy and important time of year for these sectors, there are reports of footfall decreasing and bookings being lost.
“However, after the past 18 months, businesses are accustomed to adapting to restrictions, so measures to check the spread of the virus will likely have less effect on activity than in 2020. Nevertheless, these latest developments are expected to have a short-term impact on growth.
“For businesses, while much is uncertain, leaders can still prepare for 2022 by prioritising broader challenges such as inclusive growth and social mobility in a way that creates opportunities, and weaves them into a long-term strategic vision.
“Addressing challenges such as these will be critical to any post-pandemic recovery, while climate change and sustainability will rightly remain a priority on corporate agendas for some time.”