Economic Commentary - April 2022

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.

Measures to tackle COVID in China and the early impact of war in Ukraine are beginning to weigh on global economic performance, although most major economies continue to report strong expansion. The outlook for the global economy has also weakened considerably since the outbreak of the conflict, with growth in 2022 now forecast at 3.6%. All major economies are expected to grow more slowly than previously expected as the war adds to inflation, although the impact will be greatest in Europe. Growth in UK GDP slowed to just 0.1% in February as ongoing supply chain disruption undermined strong tourism-related gains. Business confidence has also eased due to cost pressures and conflict in Ukraine, although recent business surveys suggest further expansion in business activity in March. The Scottish economy was 1.3% above its pre-pandemic level of output in February. Business activity continued to grow through the first quarter, but growth has become increasingly reliant on service providers, which may now be impacted by the cost-of-living crisis. In March, the number of payrolled workers in Scotland was 21,000 higher than before the pandemic. However, wages are failing to keep pace with inflation, and there has been a sharp rise in economic inactivity as some workers leave the labour force. Scottish businesses continue to report widespread inflationary pressures (rising energy, staff and raw materials costs), recruitment difficulties and some supply chain disruption. In some cases, these challenges are forcing businesses to operate at reduced capacity, or to pause production. Conflict in Ukraine is likely to compound these issues by adding to cost inflation and further disrupting supply chains. Forecasts for UK and Scottish GDP growth in 2022 have been downgraded to 4.2% and 3.5% respectively, amid global uncertainties and inflation hitting both consumers and businesses.

This paper makes no recommendations.