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As more information emerges about the Omicron variant and restrictions are gradually eased, Scotland’s gross domestic product (GDP) is expected to grow by 4.8% this year.
Analysis by KPMG UK forecasts that Scotland’s growth is then likely to moderate, settling at a more typical level of 2% in 2023.
The Scottish economy shrank by 9.7% in 2020, broadly in line with the UK average, and in the third quarter of 2021 GDP was still 1.9% below pre-pandemic levels.
However, late last year things picked up momentum when monthly data for October showed GDP was just 0.4% below pre-pandemic levels.
Now the easing of what were previously stricter pandemic restrictions than in England should help boost growth in the Scottish economy.
James Kergon, Senior Partner at KPMG UK in Scotland, said: “Our latest estimates are welcome news, particularly for businesses in the retail, travel and hospitality sectors, which have been hardest hit in recent months.
“While there are signs of optimism for some, there is no doubt that 2022 will be another challenging year for some sectors.”
GDP growth outlook for UK countries and regions
Meanwhile, the Bank of Scotland is new recovery tracker Data shows that Omicron halted the growth of consumer-facing companies in December as manufacturers benefited from easing supply chain pressures.
Despite headwinds that caused the pace of the overall UK economic recovery to slow, the total number of UK sectors monitored by the tracker that reported manufacturing growth remained stable month-on-month – with growth in 10 sectors in both December and November.
Activity in the tourism and recreation sector – which includes pubs, hotels, restaurants and leisure facilities – fell in December (43.2) for the first time in nine months as concerns about the variant Omicron virus impacted consumer behaviour . A reading above 50 signals an increase, while a reading below 50 indicates a contraction.
The UK transport sector – which includes airlines, hauliers and rail operators – saw its first loss of momentum in four months and posted the weakest output growth since last August (54.3).
In contrast, three of the manufacturing sectors posted stronger monthly performance in December, helped by strong demand and easing supply chain pressures.
These included manufacturers of household products, whose output growth accelerated to the fastest rate since last June (56.7 in December vs. 52.2 in November), manufacturers of technology equipment (60.1 vs. 53.1) and industrial goods (52.2 vs 50).
The number of firms unable to meet demand due to staff or material shortages continued to decline from their September peak but remained at elevated levels compared to long-term averages.
In December, the number of companies reporting rising backlogs due to staff or material shortages was about five times the long-term average, compared with September when it was more than six times the long-term average.
According to the Bank of Scotland, UK companies were more likely to report capacity problems due to staff shortages than their eurozone counterparts.
The potential for availability of qualified candidates to remain tight and competition for talent leading to further wage pressures could mean high inflation in the UK will persist longer than the eurozone in 2022, even if pressures on the supply chain continues to decline.
All 14 UK sectors monitored by the Tracker reported rising input costs in December, with wages remaining a key cost driver – particularly for firms in the service sector.
Overall, UK firms were 4.3 times more likely than the long-term average to report an increase in their wage bills as firms seek to attract and retain skilled talent, up from 3.8 times in November.
Jeavon Lolay, Head of Economics and Market Insight at Lloyds Bank Commercial Banking, said: “While consumer-focused businesses, such as those in travel and hospitality, unsurprisingly bore the brunt of consumer concern over the Omicron variant in December, resilience was evident in others, the service and manufacturing sectors helped mitigate the impact on the economy as a whole.
“Further signs of optimism came in data showing supply chains are slowly recovering and workforce numbers are rising in all sectors except tourism and recreation.
“However, the cost backdrop remained acute as higher energy prices and labor costs pushed up business spending. It is no surprise that more and more companies are planning to raise their prices in the coming year, pointing to rising and potentially persistent domestic inflationary pressures.”
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