KPMG survey suggests Scottish downturn may be less severe than UK

Scotland is facing the “most severe economic downturn in modern times” as a result of the coronavirus crisis but the projected contraction may prove less severe than other parts of the UK.

Catherine Burnet of KPMG, photographed in the Edinburgh office of KPMG. Picture: Mike Wilkinson

The Scottish economy is forecast to shrink by 6.8 per cent in 2020, according to KPMG’s latest quarterly outlook, but regional chairperson Catherine Burnet said the financial services giant expected a “partial recovery” in the second part of the year as lockdown restrictions are eased.

The decline in the gross value added (GVA) measure north of the Border is less than the fall of 7.2 per cent forecast for the UK but Aberdeen and Aberdeenshire are expected to endure a greater hit, with drops of 8.6 per cent and 8.5 per cent predicted respectively.

West Lothian is expected to be the least affected, according to KPMG, with a predicted 5 per cent economic decline in 2020.

With uncertainty about when a vaccine will be available, the economic modelling examined four different scenarios.

Burnet said: “Considerable uncertainty remains around the timing of a vaccine, which will impact the timing and speed of the recovery as well as the extent of any permanent damage to the economy.

“That said, there are some tentative signs of a pick-up in activity and we expect to see a partial recovery in the second half of this year as the gradual easing of restrictions brings light to more corners of the economy.

“However, a full resumption of activity is unlikely until a vaccine or effective treatments for Covid-19 is found.”

She added: “The pandemic will leave a lasting mark on the economy. We all need to adjust to a new future, not just to the current recession, and make the most of the hand we’ve been dealt to build something better for us all.”

Meanwhile, the UK unemployment rate is forecast to grow to 8.6 per cent this year, then rise to 11 per cent in 2021.

James Kergon, senior partner at KPMG UK in Glasgow, warned “the gradual winding down of the job retention scheme may well result in a sudden change in fortunes for many workers throughout Scotland”.

But he said the country’s economy having “diversified significantly over recent years” should help mitigate the impact from those sectors likely to be hardest hit, such as tourism and hospitality.

Speaking about the impact on the North-east, Martin Findlay, senior partner at KPMG in Aberdeen, said the area was “already facing major economic challenges” before lockdown as “the energy sector battled with oil price fluctuations and a global effort to move towards significant climate reduction targets”.

He added: “Companies are facing the prospect of significant restructuring. We’ve been here before and Aberdeen, more than any other Scottish city, has become accustomed to the big rises and falls.”

A message from the Editor:

Thank you for reading this story on our website. While I have your attention, I also have an important request to make of you.

With the coronavirus lockdown having a major impact on many of our advertisers - and consequently the revenue we receive - we are more reliant than ever on you taking out a digital subscription.

Subscribe to scotsman.com and enjoy unlimited access to Scottish news and information online and on our app. With a digital subscription, you can read more than 5 articles, see fewer ads, enjoy faster load times, and get access to exclusive newsletters and content. Visit https://www.scotsman.com/subscriptions now to sign up.

Our journalism costs money and we rely on advertising, print and digital revenues to help to support them. By supporting us, we are able to support you in providing trusted, fact-checked content for this website.

Joy Yates

Editorial Director