GDP growth outlook
The economic outlook remains extremely challenging. Growth is forecast for 2021 supported by the vaccination programme, however increased restrictions continue to weigh on the short term outlook.
- The economic outlook for the global and domestic economy remains extremely uncertain. The pace at which developments around the pandemic continue to evolve are strongly influencing both the short term outlook and longer term scenarios.
- At a global level, the IMF project world GDP to have fallen 3.5% in 2020 before rebounding to grow 5.5% in 2021 and 4.2% in 2022. However, they set out that the pace of recovery is likely to vary significantly across countries with advanced economies forecast to grow 4.3% in 2021 while emerging market and developing economies are forecast to grow 6.3%.
- At a UK level, the latest average of new independent forecasts published by HM Treasury suggests UK GDP has contracted by 10.6% in 2020 and is expected to grow 4.4% in 2021. The average new forecast for 2021, has slightly weakened from December (down 1 percentage point) potentially reflecting the lockdown restrictions that have been introduced at the start of the year.
- In their latest Monetary Policy Report, the Bank of England project that UK GDP will have fallen 10% in 2020, before growing 5% in 2021, revised down from their November forecast of 7.25%. However, they have revised up their estimate of Q4 2020 GDP, following a smaller than expected fall in November, and expect the economy to recover to pre-pandemic levels in Q1 2022, despite the recent tightening of restrictions.
- In Scotland, the Scottish Fiscal Commission project Scottish GDP to have fallen by 10.7% in 2020 as a whole and not recover to pre-pandemic levels until the start of 2024.
- In the short term, the SFC forecast Scottish GDP to fall by 5.2% in the first quarter of this year, reflecting the tightening of restrictions, while unemployment is projected to rise to 7.6% in the second quarter, following the scheduled end of the furlough scheme.
- Longer term the SFC forecast modest growth of 1.8% over 2021 as a whole, as health restrictions are assumed to persist throughout the year, before accelerating to 7.5% growth in 2022, as restrictions are assumed to no longer be required.
- Overall, the range of forecasts indicate that there will likely be significant differences in the economic recovery across countries depending on factors such as the roll out of the vaccination programmes, levels of restrictions that continue to be needed and the level of fiscal support.
- Currently, restrictions are continuing to significantly impact economic activity in Scotland and across the UK and the latest data reflect the differences in their timing, duration and stringency. However the international context remains key to the economic outlook also and the pace at which international economic activity can recover and drive growth alongside the domestic economic recovery.
There is a problem
Thanks for your feedback