THE global coronavirus pandemic has already triggered a sharp economic downturn in Scotland and hopes of a swift recovery may be “overly optimistic”, a leading think-tank has warned.

The University of Strathclyde’s Fraser of Allander Institute declares in its latest commentary, published yesterday, that the Covid-19 outbreak represents an “unprecedented shock” to the global economy that will trigger a recession.

Fraser of Allander director Professor Graeme Roy said: “The large-scale mothballing of our economy in response to the public-health emergency is unlike anything we have seen since World War II.”

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The UK Government has unveiled huge measures aimed at mitigating the economic impact of the crisis, including support for people’s incomes. Credit ratings business DBRS Morningstar yesterday said most advanced-economy sovereign states had “adequate fiscal space to implement temporary measures to mitigate the adverse impact of Covid-19”.

Fraser of Allander deputy director Mairi Spowage said: “The current situation – almost unthinkable just a few weeks ago – of the state stepping in to support wages will not only help families and businesses at this crucial time, but will act as an important bridge to support the recovery when it comes.”

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Contemplating the outlook, Mr Roy said: “Assuming that the public-health emergency will pass in the coming months, the hope of many is that the economy should come out the other side with only a limited hit to its long-term productive capacity.

“But this is looking increasingly overly optimistic. The scale of the shutdown in our economy is so large it will take months, if not years, to recover. Key now will be ensuring that long-term scarring effects of any recession can be mitigated as much as possible.”

The think-tank highlighted its view that the crisis would “undoubtedly change the shape of our economy in the long run”.

Mr Roy said: “The economy that will emerge from this will look quite different and not just because many businesses may struggle to survive. How individual sectors and businesses will adapt over the next few months – from retail through to universities – will change behaviours forever.”

He added: “The Government’s response to the public health crisis is arguably the first step on a new social partnership between the state and business, perhaps unlocking a much broader conversation about inequalities and sharing the proceeds of growth more evenly across society.”

Mr Roy observed that businesses and policy-makers had always known that a global pandemic represented a major risk to “our highly integrated global economy” but added that “the pace at which this crisis has escalated has caught many off-guard”.