Economic Commentary - July 2021

The Economic Commentary provides a monthly update on global, UK and Scottish economic trends, drawing on recent economic data as well as feedback from businesses

The methodology consisted of desk research.

Global economic performance continues to vary according to the level of coronavirus restrictions present in each country, with the U.S. and Europe outperforming Asian economies at the end of the second quarter of 2021 after the latter reported a resurgence in COVID-19 cases. The UK's economic recovery is becoming increasingly broad-based as more sectors re-open, although growth slowed in May as the boost from earlier phases of re-opening faded. Scotland’s economy is following a similar trajectory, yet the uneven impact of forced closures over the last year means the pace of recovery (as well as reliance on government support, such as the furlough programme) differs between sectors and regions. Scottish businesses are increasingly optimistic of a return to more normal trading conditions as COVID-19 restrictions ease. However, consumer-facing sectors such as hospitality report being forced to operate below capacity as a result of remaining restrictions. Supply chain disruption caused by shipping delays and staff shortages due to workers leaving sectors heavily impacted by restrictions also continue to be major issues for Scottish businesses.

The outlook for the global economy remains strong but there is considerable concern developing countries with limited access to COVID-19 vaccines will be left behind in the recovery. The latest forecast for the Scottish economy is for robust growth in 2021 as restrictions ease further, and a quicker return to pre-pandemic levels of activity than previously anticipated. Headwinds facing Scottish businesses in the near term include rising input costs and capacity pressures - while the transition to net zero and an attractive inward investment proposition offer opportunities to accelerate recovery.