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Economic commentary

Economic commentary

Our bi-monthly update on global, UK and Scottish economic trends and performance, drawn from a wide range of economic indicators and commentaries. Published February 2021.

Global trends

The IMF forecasts the global economy will grow 5.5% in 2021 and 4.2% in 2022, believing the rollout of Covid-19 vaccines and more government fiscal stimulus will offset the immediate challenge posed by the resurgent virus.

The projected global recovery follows a 2020 contraction now estimated at 3.5%, less than previously forecast after stronger-than-expected momentum in the second half of the year.

In the first few months of 2021, the IMF expects economic growth to be subdued due to renewed restrictions, with activity rising in the second quarter as vaccines become more readily available.

However, the strength of the recovery is likely to vary significantly across countries depending on the extent of restrictions and disruptions to activity, and the effectiveness of policy support to limit persistent economic damage.

Growth is expected to be strongest in China, where effective measures to contain Covid-19 and a robust government investment response saw a strong recovery begin in 2020.

Sizable government fiscal support announced for 2021 is expected to boost activity in both Japan and United States with both countries regaining pre-pandemic output levels in the second half of 2021.

However, 2021 forecasts for the UK and the Euro Area were lowered due to fresh lockdowns - both were among the harder hit advanced economies in 2020 and output is expected to remain below pre-pandemic levels into 2022.

Emerging market and developing economies are generally expected to recover more slowly on expectations of later widespread vaccine availability.

Global trade is forecast to grow 8% in 2021 and 6% in 2022, with services trade expected to recover more slowly than merchandise volumes until Covid-19 transmission declines everywhere.

UK trends

The Bank of England’s latest Monetary Policy Report highlighted again that the economic outlook is unusually uncertain and depends on how the pandemic evolves, the measures taken to protect public health, and how households, businesses and financial markets respond to these developments.

UK GDP growth slowed to 1.0% in Q4, following a 16.1% expansion in Q3, as Covid-19 cases rose and restrictions were tightened. GDP contracted 9.9% in 2020, the largest annual fall on record.

UK GDP is projected to fall by around 4% in Q1 2021 as a result of much stricter restrictions to help contain the current spread of the virus. Initial business adjustment to the UK’s new trading relationship with the EU is also expected to temporarily lower activity.

Economic activity is then projected to recover strongly over 2021, reaching pre-pandemic levels in Q1 2022, as the vaccination programme leads to an easing of restrictions and an increase in consumer spending.

UK GDP is forecast to grow 5% in 2021 and 7.25% in 2022 before slowing to 1.25% in 2023 as the boost from pent-up demand and fiscal and monetary support fades.

The UK unemployment rate is forecast to peak at around 7.75% in the middle of 2021 following the end of the furlough scheme, before gradually declining.

UK business surveys suggest a significant setback in the recovery of business activity following the reintroduction of lockdown measures.

The NatWest Regional Business Activity Index reported a broad-based decrease in business activity in January, although the decline was less than during the initial lockdown in the spring.

All regions and nations of the UK recorded their steepest falls in business activity since May, but most businesses remained optimistic due to the rollout of Covid-19 vaccines and hopes for the easing of restrictions.

Scotland experienced the sharpest decline in both activity and new business, and was the weakest-performing UK nation/region in January.

Scottish trends

Feedback from Scottish Enterprise customers

What does this mean for Scottish businesses?

Renewed lockdown measures are further challenging a Scottish economy still struggling from the original shock of Covid-19. Positive news around vaccines offers hope but recovery is likely to be gradual and may only gather pace when restrictions are fully eased. The end of the EU transition period has also seen some trade disruption and delays in the movement of goods, and may continue to have significant implications for the economy as it emerges from Covid-19.

Unemployment continues to grow and will likely rise further when the furlough scheme ends. Particular groups (for example, lower skilled, younger workers) remain the most vulnerable to job losses and could face longer periods out of work.

Business, sectors and places will need to continue to respond quickly and innovatively to ongoing challenges and will need a range of support to boost resilience and stimulate recovery – for example, support to:

  • Access government advice to be as prepared as possible for any opportunities that occur as lockdown restrictions change across Scotland, and to adapt to new exporting requirements post-Brexit
  • Access funding support – both through provision of funding and financial readiness advice
  • Access market intelligence, especially from overseas - for example, on the opening of markets, new regulations (especially post-Brexit), new channels to market, and changing customer demands and needs
  • Innovate/invest in R&D to develop new products/processes; this will include accessing relevant innovation funding, expertise and talent, especially post-Brexit
  • Develop new ways of doing business – including online selling and marketing, investing in the right ICT equipment (including greater automation) and workplace innovation
  • Retaining, attract and develop skills – for example, supporting staff to adapt to changing work patterns, reskilling workers to effectively use new technology
  • Implement Health & Safety and social distancing requirements in ways that minimise productivity losses and facilitate future growth – for example, support from Scottish Manufacturing Advisory Service (SMAS) practitioners
  • Develop and deepen local supply chains to build future resilience through higher levels of local sourcing. Understanding supply chains also helps identify gaps in Scottish capacity that could be filled by existing/new Scottish businesses or potentially via targeted inward investment
  • Invest in the environmental, low carbon and net zero aspects of recovery and the opportunities this may bring
  • Build competitive, place-based assets that will attract investment and workers, and ultimately create local, high quality jobs


We release Scotland's economic commentary bi-monthly. This commentary reflects our understanding of issues at the time of writing drawn from a wide range of credible and respected sources and should not be taken as Scottish Enterprise policy.

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