GDP growth outlook
Economic forecasts for 2021 have increased over the year reflecting progress made on recovery, however monthly UK forecasts have eased slightly in the third quarter.
- GDP growth forecasts for Scotland point to a rebound in growth over 2021 with GDP returning to its pre-pandemic level in the first half of 2022.
- The most recent forecast from the Fraser of Allander Institute in September is for Scotland's GDP to grow 6.5% in 2021 and 4.8% in 2022, and return to pre-pandemic levels in April 2022. This is an upward revision from their forecast in June, reflecting in part the pick-up in growth over the second quarter of the year.
- This is broadly in line with the Scottish Fiscal Commission (SFC) forecast from August which projects growth of 6.7% in 2021 before moderating to 4% in 2022, with GDP returning to pre-pandemic levels in the second quarter of the year.
- There are downside risks to the short term economic outlook however, reflecting the supply chain disruptions that have emerged and a pick-up in inflationary pressures, alongside uncertainty in the labour market outlook as the furlough scheme ends.
- The SFC forecast Scotland's unemployment rate to peak at 5.4% in Q4 2021, reflecting that some people may be made redundant at the end of the furlough scheme, while people who had stopped looking for work may re-join the labour market and move from inactivity to unemployment. However, unemployment is then expected to gradually fall back to 4.4% at the start of 2023.
- At a UK level, in August, the Bank of England forecast UK GDP growth of 7.25% in 2021 and 6% in 2022, with unemployment forecast to fall in 2021 to 4.75%. The average of new independent forecasts (published monthly by HMT) in September forecast UK GDP growth of 6.8% in 2021. This has eased slightly from July, and potentially reflects early indications that the pace of recovery has moderated into the third quarter.
- At a global level, in September the OECD forecast global GDP to increase 5.7% in 2021 and 4.5% in 2022. Similarly, in July the IMF projected global growth of 6% in 2021, moderating to 4.9% in 2022.
- However, the pace of recovery remains notably different across countries, alongside the extent of supply chain and inflationary pressures. The OECD set out that while these pressures should fade gradually, there are risks that they could persist for longer, while the underlying risks to the global recovery, of slow vaccine rollout and the spread of new virus mutations, remain.