Scotland’s growth forecast for 2022 has been revised down, due to the impacts of cost increases on consumers and businesses – issues that are being exacerbated by the war in Ukraine.
This is according to the Fraser of Allander Institute at the University of Strathclyde, whose Deloitte-sponsored quarterly economic commentary forecasts growth of 3.5% in 2022 and 1.5% in 2023.
The outlook has significantly worsened for 2022 since the last set of forecasts in December 2021.
Two years on from the first lockdown, the latest data shows that the Scottish economy has just recovered to pre-pandemic levels, but this overall picture hides a disparate sectoral story, with hospitality and leisure businesses still operating significantly below pre-Covid levels of output.
Consumers are starting to feel the pinch, with many noticing increases in their food shopping, energy bills and the cost of fuel. This is before the expected increases in April, as the energy price cap moves up still further.
Director of the institute, professor Mairi Spowage, said: “The measures introduced by the Chancellor’s Spring Statement are not likely to be sufficiently targeted to help those on the lowest incomes - consumers and businesses are going to feel the squeeze in the coming months, if they haven’t already, with soaring energy and food bills.
“This has the potential to limit the economic recovery we hope to see during 2022, as consumers cut back on discretionary spending, and even perhaps businesses limit production due to input costs.”
Steve Williams, senior partner at Deloitte in Scotland, said: “Despite the easing of pandemic-related restrictions more recently, expectations for an economic recovery are being dampened by a number of factors, not least the war in Ukraine.
“Businesses continue to face a variety of difficulties including soaring operating costs and labour shortages, while the cost of living crisis continues to grow in parallel with learning to live with Covid-19.”
This quarter’s commentary also analyses the latest data from the Scottish Business Monitor , discussing the impact of supply shortages and the ongoing energy crisis on businesses in Scotland.
The latest research from the Fraser of Allander Institute finds that more than half of Scottish firms are finding it difficult to source goods and services.
Adam McGeoch, economist at the institute, said: “Increasing costs due to global supply chain issues and rising oil and gas prices are key concerns for Scottish businesses, with one in five firms expecting to reduce operations this year due to higher energy bills.
“Labour shortages are also feeding into supply constraints as businesses struggle to attract and retain staff - our analysis finds that three in five Scottish firms are finding it difficult to hire due to a lack of skills and experience.”
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