The Fraser of Allander Institute think tank claims that the “Scottish economy is now in its deepest recession in living memory”. In the report, the institute said that Scotland’s economy may not normalise until summer 2024 if there is a second wave of the disease.
It comes after economic figures last week showed that GDP in Scotland plummeted by 18.9 percent in April.
They stressed that it was the “worst-case scenario” if there was another spike of cases and stringent lockdown measures had to be reimposed straight away.
However, they said if the easing of restrictions goes “smoothly”, the institute said that it was possible the Scottish economy could get back to pre-crisis levels by late 2021 or early 2022.
Although the report said this fall was “unprecedented” it added it was “broadly what was expected given the scale of the mothballing of large sectors of the economy”.
Within the report, the think tank also fears a possible “raft of redundancies and business closures” as the UK government’s coronavirus help schemes get scaled back.
Currently, figures show that more than 750,000 people in Scotland are on Westminster’s self-employment or furlough schemes.
Meanwhile, the number of Scots in receipt of the Universal Credit also rose to more than 440,000 in May, up from 185,000 during the same time last year.
The report added: “The immediate priority for many businesses is survival.
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“But expect a spike in closures and job losses as firms look ahead to the rolling back of the furlough support later in the year.”
The report said Government support has provided an “invaluable safety net” during the crisis, with “around £10 billion of funding support for the Scottish economy through additional resources for the Scottish Government and various business support schemes”.
But looking ahead, it warned there is “an optimistic view that if firms survive the immediate next few weeks and the re-start of key sectors goes smoothly, the recovery may build momentum relatively quickly”.
It stressed that “economic activity could pick-up sharply as demand returns” providing there is no second spike of infections.
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But it cautioned that the “effects of the crisis could be more significant”, saying if there is a more gradual recovery it could be “towards the end of 2022” before economic output returns to pre-crisis levels.
The report continued: “Should there be a second wave and reintroduction of more stringent restrictions, the hit to the economy will be all the greater.
“Here, the hit to livelihoods could be greater than we have seen in a generation.
“We estimate that this could mean the economy does not get back to pre-crisis levels until mid-2024.”
The think tank concluded it was now “vitally important to avoid a second wave of infections” and said that the Scottish Government needs to develop an “effective plan for the safe return of schools to let parents return to work”.
They said that Nicola Sturgeon’s administration also needed to “get the right balance between the easing of their support measures and the lifting of restrictions”.
Professor Graeme Roy, director of the Fraser of Allander Institute, told Express.co.uk: “The near 20 percent drop in economic activity in April for Scotland highlights the scale of the economic crisis that we face.
“So far, as a result of the major Government support initiatives that have been put in place – including around 750,000 employees furloughed or supported through the self-employment scheme – the impact of the full effects of the crisis have been dampened.
“Sadly, it is only now once we start to switch the economy back on that the crisis will hit home with a raft of redundancies and business closures likely over the summer.”