Scots economy facing 'double hit' as Covid and Brexit risk a 'W-shaped' recovery
Scotland's beleaguered economy is facing a "double impact" from COVID-19 and the looming prospect of a No Deal Brexit, MSPs have been warned.
The economy north of the border could shrink by 2% if no extension to the Brexit transition period is agreed beyond the current December 31 deadline and the country could be facing a "W-shaped" recovery from the current lockdown.
The Scottish Government has been demanding an extension to the Brexit transition as a result of the COVID-19 crisis. But Economy Secretary Fiona Hyslop raised fears today that the UK may not only end the transition period as planned, but leave without a deal on future trade arrangements.
"If the UK Government does not achieve a deal with the EU in relation to Brexit and we are careering towards a No Deal Brexit, we know from the No Deal planning previously that certain parts of the economy will be affected and certain regions will be affected worse, for example food and drink," she told Holyrood's economy committee.
"I'm really concerned that we will actually have a double impact in certain regions that are reliant on food and drink.
"Those two factors depending on what happens, and it's only a few weeks until the July 1 deadline, as to whether there's an extension or not and whether there's a possibility of a No Deal , that's a very serious one to consider."
She added: "The combination of those two factors, particularly a No Deal Brexit, if that's what transpires, would really compound what will already be a very difficult situation.
"Regardless of what your views are on Brexit generally, there is a concern about a No Deal Brexit having a further impact."
The financial crash of a decade ago saw a 5% reduction in GDP over the first year of that crisis, but the COVID lockdown has been estimated to have seen a 33% fall in GDP over the period of closure.
Ms Hyslop said that initial analysis had suggested that the economy could bounce back quickly as activity is restarted, resulting in a "V shape" recovery. But there are now growing concerns that not just local but global demand could be suppressed in the longer term.
"There's a possibility that the V-structure changes, it's why it could be a W-shaped recovery."
Scotland's chief economist Gary Gillespie warned that if Scotland leaves the EU as planned at the end of the year, it would bring "additional frictions" to the economy in the form of extra trade or regulatory costs.
"That could essentially cost up to 1% or 2% of GDP, but that would be over and above the type or shape of recovery we would face from the pandemic and the uncertainty."
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