Economic Commentary – May 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.

All major global economies reported weak growth or even contraction in the first quarter of 2022 as high inflation, conflict in Ukraine, and supply chain challenges related to the pandemic all weighed on economic performance. The outlook for the global economy has weakened considerably following Russia’s invasion of Ukraine, with growth in 2022 now forecast at 3.2%. All major economies are expected to grow more slowly than previously expected as the war adds to supply constraints and inflation, although the impact will be greatest in countries nearest the conflict. Growth in UK GDP slowed to just 0.8% in the first quarter as consumers cut back on spending in March, undermining gains earlier in the quarter as pandemic-related restrictions eased. Business surveys also suggest a loss of momentum in April, with rising inflation beginning to weigh on demand. The Scottish economy was 1.3% above its pre-pandemic level of output in February. Business activity has been more resilient than in the UK (likely due to a later easing of restrictions), but confidence is now easing as concerns over inflation grow. Unemployment has dropped to a record low and the number of payrolled workers in Scotland has grown by 93,000 in the last year. However, wages are failing to keep pace with inflation, and the tight labour market is causing recruitment difficulties for employers. Scottish businesses across all sectors continue to report widespread inflationary pressures, recruitment difficulties and some supply chain disruption. Concerns over cashflow are rising again. The cost of energy is emerging as a major contributor to cost pressures, now affecting almost half of Scottish businesses and becoming a key concern for the rest of 2022. The UK economy is now expected to grow by around 4% in 2022 but could stagnate in 2023, as prolonged high inflation reduces consumer spending and business investment.

This paper makes no recommendations.