Scotland Sees Economy Shrinking 12% as Lockdown Set to Remain

(Bloomberg) --

Scotland’s economy could shrink by 12% this year as a result of restrictions put in place to combat the spread of the coronavirus outbreak, while the government said the financial hit was no reason to ease the lockdown prematurely and risk greater harm.

The overall picture for the year is based on output declining by a third during the peak months of keeping people at home, the Scottish government’s chief economist, Gary Gillespie, said in a report published on Tuesday. The numbers are broadly in line with the U.K. as a whole.

“The Covid-19 pandemic is a health crisis that has now become an economic crisis,” he said. “Our analysis suggests that there could be a 33% fall in gross domestic product during the current period of social distancing.”

Along with the rest of the U.K., Scotland introduced a series of measures in late March aimed at slowing the spread of the pandemic, including the closure of restaurants and cafes and other places where people meet, and ordered people to stay home. The nation of 5.5 million people has already seen almost 1,000 deaths from an outbreak, which First Minister Nicola Sturgeon has described as “the biggest challenge of our lifetimes.”

Sturgeon said she’s “cautiously optimistic” the pandemic is being brought under control with hospital admissions broadly stabilizing in recent days and the number of patients in intensive care reducing.

“The economic harm being caused by this virus is not in itself a reason to come out of this lockdown early,” she said at a briefing on Tuesday. “If we were to move out of lockdown early, and then have to re-impose the same level of restrictions, that could cause much longer-lasting economic damage.”

The government in Edinburgh, which is responsible for health care, education and many areas of the economy, said gross domestic product likely fell 10% in March and then 25% in April. It forecast “no further change until GDP begins to increase in July.” Total support for Scottish businesses from the administration currently stands at 2.3 billion pounds ($2.9 billion).

“As business and society reopens we will see a reversal of the output contraction for many parts of the domestic economy,” Gillespie wrote. “However, not all sectors will come back immediately as external demand, consumer tastes, and business models will have changed significantly.”

Scotland’s government this week urged the U.K. to trigger a two-year extension to negotiations on a new trade agreement after leaving the European Union to help mitigate the potential shock to businesses and households.

Talks on the next stage of the Brexit process restarted this week with the British side adamant there would be no delay to ending the current transition period at the end of the year. The U.K. left the EU on Jan. 31, something the pro-independence Scottish administration has opposed from the beginning.

©2020 Bloomberg L.P.

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