Firms forecast to face ‘challenging’ 2022 despite return to pre-pandemic growth

Businesses in some sectors can still expect a “challenging year” in 2022 – despite a forecast that Scotland’s economy will grow by 4.8%.

Experts at KPMG are predicting a return to pre-pandemic levels of growth this year, with the relaxation of coronavirus restrictions recently announced by the Scottish Government expected to help boost the economy.

It comes as GDP across the UK is forecast to expand by 3.8% over the course of 2022.

The following year should then see growth “moderate and settle”, according to KPMG’s latest UK regional economic outlook, with forecasts of growth of 2% in Scotland and 1.8% for the UK overall.

After coronavirus hit, Scotland’s economy contracted by 9.7% over 2020, KPMG said – with this broadly in line with the UK average.

By the third quarter of 2021, GDP was still 1.9% below its pre-pandemic level – but by October last year the situation had improved so GDP was 0.4% of this.

Yael Selfin, chief economist at KPMG UK, said she expects economic growth north of the border to “pick up” from March, after a “relatively weak start” to 2022.

Ms Selfin said: “Our latest analysis suggests that the Omicron variant has not impacted growth significantly in Scotland.

“However, rising taxes and borrowing costs, as well as elevated inflation, will squeeze households’ purchasing power. And at the same time, the lingering effects of supply chain bottlenecks together with a persistent shortage of labour could constrain production this year.

“Nevertheless, after a relatively weak start to 2022 brought about by Omicron, growth should pick up from March, with overall GDP growth in 2022 reaching around three-quarters the rate of last year in Scotland.”

James Kergon, senior partner in Scotland for KPMG UK, said: “Ensuring our economy continues to grow is the only way to make sure Scotland comes back stronger after the pandemic.”

He said the latest economic forecasts will be “welcome news, especially for businesses in retail, travel and hospitality who have been the hardest hit in recent months”.

But he added: “While there are signs of optimism for some, there’s no doubt that 2022 will be another challenging year for some sectors.

“It’s my hope that we can kick-start a post-pandemic growth and make sure that Scotland’s businesses can focus on long-term growth, rather than survival.”

Finance Secretary Kate Forbes said the analysis showing strong GDP growth in the country was “extremely encouraging and good news for businesses, communities and people across Scotland”.

“This reflects the strength and confidence of the Scottish economy which has remained high despite the unprecedented period of challenge it has faced due to the Covid pandemic. In light of the challenges facing businesses, it is particularly encouraging to see that Scotland’s economy is forecast to grow faster than the UK economy in 2022 and in 2023,” she said.

“The Scottish Government has continued to invest in our economy and we have provided support to businesses throughout the pandemic to ensure they were protected as much as possible from the consequences of necessary public health measures.

“That is why we have, to date, spent almost half a billion pounds more in support of businesses than the funding we received from the UK Government for that purpose, providing businesses with more than £4.4 billion in support funding.

“As we continue to ease restrictions, we are firmly focused on seizing Scotland’s economic potential, ensuring we have the infrastructure and support in place to help businesses thrive, grow our employment rate and build a fairer, more prosperous economy for everyone.”