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OPINION: Many unknowns as Highland area set for mixed fortunes due to Brexit and Covid-19 pandemic effects


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Brexit and Covid-19's impacts make it difficult to predict what will happen to the Highland economy in 2021.
Brexit and Covid-19's impacts make it difficult to predict what will happen to the Highland economy in 2021.

IT is very difficult to forecast what will happen to the economy in 2021 for two main reasons: the continuing coronavirus pandemic and the impact of the Brexit decision for the UK to leave the European Union, writes Highland economist Tony Mackay.

The UK Treasury department publishes a very interesting monthly survey of about 30 forecasters. The latest results show that the average estimate for the UK economy in 2020 was a 10.9 per cent decline in economic output (gross domestic product).

The average forecast for 2021 is growth of 5.4 per cent.

There seems general agreement that it will be late 2022 before we return to the 2019 level of economic output.

Unfortunately, I believe that the Highland economy did even worse than the Scottish and UK averages in 2020, and I expect our growth rate this year to be lower. The main reason for that is obviously the tourism industry, which is much more important here than in Scotland and the UK as a whole.

Tourism has been badly affected by the coronavirus pandemic.

At the time of writing, all the hotels, B&B places, guest houses and similar have been forced to shut down.

The fall in the numbers of visitors have had knock-on impacts on other industries such as hospitality and retail.

Columnist Tony Mackay. Picture: Gary Anthony.
Columnist Tony Mackay. Picture: Gary Anthony.

It looks as if many of the restrictions will continue for the next three months at least, so it could be the summer before there is a revival in tourism and related industries.

We have a large public sector in the Highlands, with bodies such as the Highland Council, Highlands and Islands Enterprise (HIE), NatureScot (which was formerly known as Scottish Natural Heritage) and the University of the Highlands and Islands.

Their outputs have fallen dramatically during the pandemic but not their employment, because of the government furlough schemes and other assistance.

However, the council and other bodies have switched to home-working, which has resulted in significant changes in the local economy.

In particular, there has been a big fall in spending in the large centres, such as the Eastgate in Inverness, but that has benefited local shops in some of the smaller towns and villages.

In contrast, the manufacturing sector had a surprisingly good 2020 and I expect that to continue this year.

The fish and other food processing industries are doing well; as is the whisky industry, with various new distilleries and expansions under construction; and an encouraging range of local manufacturers such as Norbord and Global Energy Group.

I also expect the local construction industry to have a good 2021. That includes a rise in housebuilding and work on various high-profile projects such as the Inverness Castle changes, Dounreay and offshore wind farms.

I forecast that Highland economic output will increase by about five per cent in 2021. However, that growth must be seen in the light of the huge fall last year.

One concern I have is how the various government furlough and other assistance schemes will be financed. An obvious conclusion is that we shall face big tax increases in the near future.

- Tony Mackay is an economist based in Inverness.


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