Scotland Could Suffer Most as Tourism and North Sea Struggle

The importance of tourism and North Sea oil and gas to Scotland’s economy could mean it is hit harder by the coronavirus crisis than the rest of the UK, a group of experts has warned.

The Scottish Fiscal Commission (SFC), established to give independent economic forecasts to the Holyrood parliament and government, said the damage caused to the two key sectors may create a “larger negative shock” north of the border.

In a new report, the group also suggested that the Scottish Government might struggle to balance its books this year because of the uncertainties surrounding the amount of cash required to respond to the emergency and its lack of borrowing powers.

Earlier this week the Scottish Government’s chief economist, Gary Gillespie, predicted the nation’s GDP could fall by 33% during the pandemic.

Tourism is worth more than £5 billion each year to the Scottish economy and is expected to take “several years” to recover from the current slump in trade.

Thousands of jobs are also feared to be at risk in the North Sea oil and gas sector, amid plummeting prices and shelved investments.

In an update yesterday, the SFC warned of the consequences for Scotland’s economy.

“The oil and gas sector is likely to be affected by the large drop in oil prices, and tourism is likely to see a significant contraction as both international and domestic travel are restricted,” it said.

However, the report added: “On the other hand, Scotland has a larger public sector than the UK, which could mitigate the shock.

“At present it is too early to tell if the economic effects of the crisis will differ in Scotland and the rest of the UK.”

The UK Government has announced plans to spend an additional £86bn in 2020/21 to combat the effects of the crisis, and the Scottish Government is expected to receive £3.5bn under the terms of the funding formula.

But the SFC said it may be difficult for Holyrood to balance its budget because of the uncertainties around the coronavirus, and its inability to borrow.

The report said the budget issue could be “difficult to manage” if the required responses in Scotland are different from the rest of the UK because Holyrood still relies in part on funding that is determined by spending south of the border.

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