THE precipitous plunges in economic output we have seen in Scotland and the UK as a whole, as well as in many other countries around the world, would have been inconceivable as the new decade dawned less than six months ago.

That was before the coronavirus crisis unfolded. And, as countries moved to lockdown, falls that would have been inconceivable became inevitable.

While we should note the output drops in assessing the challenges ahead, they are utterly predictable and, in that sense, not that interesting. There have been massive falls in gross domestic product, as forecast, and we should not become preoccupied with analysing whether one part of the UK has seen a slightly steeper drop than others or whether the overall fall was marginally greater or less than expected.

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The much-bigger question has always been, and remains, where we go from here. In this regard, the backward-looking numbers that are crucial to informing those tasked with making big decisions about the journey ahead are not GDP figures but labour market data. Not only the utterly dismal rise in unemployment but also the fact more than nine million furloughed workers have been supported by the UK Government’s coronavirus job retention scheme.

UK claimant-count, which measures the number of people claiming benefit principally because of unemployment, hit 2.8 million in May, up 1.6 million since March. These figures are dreadful.

And we must be aware of the potential for massive job losses among furloughed workers, possibly running into millions, and the need to limit the extent of these.

How the labour market figures develop will play the crucial part in dictating how the recovery pans out, in terms of determining whether it can be relatively quick under the circumstances or setting in stone a protracted and painful road back to normality. Minimising job losses is key to enabling the former scenario.

The University of Strathclyde’s Fraser of Allander Institute this week declared the depth of the collapse in Scottish gross domestic product is “largely artificial and entirely due to the lockdown”. GDP north of the Border is estimated by the Scottish Government to have dropped 18.9 per cent during April, after a 5% fall in March.

The Bank of England last week noted emerging evidence suggested the fall in GDP in a global and UK context in the second quarter would be less severe than it had forecast in May. However, it warned of “a risk of higher and more persistent unemployment in the United Kingdom”.

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Fraser of Allander warned: “The immediate priority for many businesses is survival. But expect a spike in closures and job losses as firms look ahead to the rolling back of the furlough support later in the year.”

We are already seeing business closures and job losses, and the scale of redundancies being announced even before the furlough scheme support actually declines is nothing short of alarming. The UK Government should take a good look at what is happening, in terms of its seeming determination to phase out the scheme by October and make employers pay towards it from August. Through the scheme, the taxpayer funds 80% of the wages and salaries of furloughed workers up to £2,500 a month.

There is now a fierce debate over the speed of reopening of the economy. Scotland is moving more slowly than England in loosening lockdown restrictions. However, it is taking major steps to reopen its economy, and has to make judgement calls on the speed at which it is safe to do so. While some might be frustrated, it is important not to lose sight of how catastrophic a second wave of Covid-19 would be, in terms of large numbers of additional deaths and also the huge setback to economic recovery. This risk may have receded but it has not gone.

Fraser of Allander noted: “There is…the very real threat of a second wave of the virus and the impact to the economy if restrictions were put in place once again.”

Success or otherwise for policy-makers in the difficult task of reopening – assessing how quickly businesses can restart and/ or build activity safely – will of course have a major bearing on the short-term economic outlook.

What remains absolutely crucial is that government support schemes, particularly the huge UK furlough support programme, take into account when businesses can realistically reopen and expand activity safely, and accommodate any differences in the easing of the lockdown in devolved nations. The UK taxpayer-backed furlough scheme must not evolve based only on what is happening in England, and must not force the pace of change elsewhere.

This has always been about mitigating the damage from a dramatic and unprecedented but hopefully short-term dislocation. And this remains the case.

The behaviour of companies will also be crucial.

Fraser of Allander director Graeme Roy noted, while there were “debates to be had about the nature of growth, how it is distributed, and its sustainability”, the importance of a “prosperous economy for our collective wellbeing... cannot be overestimated”. It is of course crucial to create wealth so it can be distributed.

In this regard, companies can be forces for good or bad, and never more has that been the case than now.

Those companies fortunate enough to have the choice over whether or not they cut jobs can boost recovery prospects, and also their own long-term capacity and prospects, by retaining as many people as they can. They might have to take a hit to profits in the short term but this would hopefully be more than offset by longer-run benefits. Companies that behave in this way will be forces for good.

Other business leaders, sadly, will stick with short-termism, will be overly obsessed with maximising immediate profits, and will cut deep into their workforces. They will lose talent and capacity, and collectively make the economic situation worse by raising the risks of Scotland and the UK as a whole having very big unemployment numbers over a protracted period. This will weigh heavily on demand, as well as causing major social problems, which will have to be addressed through even-greater public spending, and the cost of unemployment benefits will surge.

The cost of unemployment benefits should be borne in mind by Chancellor Rishi Sunak, amid continued pleas for special dispensations in the furlough scheme for sectors that will be slow to reopen and for the programme to be extended beyond October.

The furlough scheme, and other government programmes in Scotland and the UK as a whole, have been aimed at preserving the supply side of the economy by preventing businesses from collapsing, as well as minimising unemployment.

It will be vital as we move ahead to maximise demand. Minimising unemployment will be crucial in this. And so will UK Government policy.

The Conservatives should, whether it is comfortable for them or not, reflect on everything they did wrong after taking the helm in 2010. They raised value-added tax. And they cut welfare benefits savagely. They made big cuts in corporation tax in a bid to stimulate investment that never materialised.

The key this time will be in maximising the amount of money in the pockets of those who have to spend all or most of what they have to live, whether they are the working poor, temporarily unemployed, or have been out of work on a longer-term basis. The Tories must also avoid the temptation to make big cuts in public spending or repeat the pay-freeze nonsense. They should do so not only because it is the right thing to do, if they look at the efforts of front-line workers during this crisis and in normal times, but also because this will aid consumer spending and the economy.

Detractors might say this type of approach will fuel public-sector debt. These people should consider the top line in terms of economic activity and tax revenues, and mull whether achieving as fast a recovery as possible might actually benefit the public finances. It is crucial the Tories do not revive the toxic mix of austerity we have seen in the last decade, if we are to have any hope of mitigating the economic damage from this human tragedy.

Meantime, we must hold our nerve as much as possible and not lose hope. There is some good news out there, even in these most challenging of times.

It was heartening this week to hear North Berwick-based Jerba Campervans was bringing back all 15 of its staff, who had been furloughed, as it restarted production. The firm, which converts Volkswagen Transporter vehicles into bespoke campervans, cited its hopes that demand could be boosted by a projected boom in staycations, while emphasising it was not getting ahead of itself.

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While Jerba is a relatively small firm, it will be the decisions of hundreds of thousands of businesses around the UK, of all sizes, as well as government policy, that will collectively play such a big part in determining what happens from here.