THERE are fleeting indications of a watery sun peeping through the dark economic clouds.

Data for the UK and for Scotland point to a modicum of recovery in the third quarter of 2020, albeit from the lowest base for many a decade. We must now wait and see how recovery develops.

The trends in the short to medium term will be in part dependent upon whether the risks of a second Covid19 wave materialises. Further out continuing recovery will be influenced by what type of Brexit is achieved and what happens in the wider world and the relationship between USA and China. Uncertainty remains compounded upon uncertainty.

But let us first focus for a while on the (relatively) good news. The UK Purchasing Managers Index moved up from below 50 (indicative of decline in output) in June to the heady and positive heights of 57.1 in July. The index was well above 50 for both services (56.6) and manufacturing (53.6). We have lift off.

Within this context there has been a significant recovery in retail sales, but essentially due to more purchases of physical goods – often online – rather than higher spend on leisure and experiences. Some of this may be a one-off bounce-back, buying goods whose purchase had been deferred while in lockdown.

But another positive is that consumer confidence recovered a little in July from desperate depths. If businesses continue to re-open, and folk return to jobs and full incomes, then maybe the upward confidence trend can continue along with the positive trend in retail sales.

The ONS data for late June show that a greater proportion of businesses in Scotland remained closed than was the case in England, but the (positive) downward trend in numbers closed is again (slowly) continuing. No surprise then that the Fraser of Allander institute tells us that at the beginning of July nearly one third of all eligible jobs in Scotland were furloughed and households were experiencing an average loss of income of around 4.5%.

In order to maintain, and indeed accelerate, the recovery in output we need to see more businesses across all sectors reopening; a marked reduction in the number of furloughed jobs; recovery in household incomes; and confidence picking up for both households and businesses.

The latest Scottish Business Monitor is none too optimistic. The ‘average’ firm is expecting to operate at only between half and three quarters capacity over the next six months. Over half of employers expect to reduce staff – make redundancies – as the furlough scheme terminates.

Just as worryingly, nearly one half of Scottish companies surveyed have seen their indebtedness increase during the lockdown. That all suggests lower output, employment and investment than prior to pandemic, even by the end of the year and even given no significant second spike.

None of this analysis of the latest UK and Scottish data appears consistent with the expectation, voiced by the Bank of England’s Chief Economist Andy Haldane, of a ‘V’ shaped recovery ahead.

To me it looks much more like a gently upwards sloping ‘L’ shape – with that gentle pick up following the dramatic decline. It still sounds really incredible (in the true sense of the word) that UK GDP fell 6.9% in March and 20.3% in April. These are historically unprecedented declines and to expect equally unprecedented recovery, while such uncertainties remain, has to be unrealistic.

The latest ITEM Club forecast appears more plausible. They now expect GDP to end 2020 down 11.5%, and to grow by ‘only’ 6.5% next year; not reaching the level attained in Q4 2019 until 2024. Even that forecast is based upon the UK avoiding a ‘no deal’ Brexit and likewise avoiding a serious Covid second wave, as restrictions are eased. If either (or heaven forfend both) assumption proves over-optimistic, then we should not expect anything like 6.5% growth next year.

The second Covid wave risk is more in the lap of the gods than that of economists. But we know that both the Brexit and the general external risk are real and deeply troubling. At present the central expectation has to be that the UK will leave the EU with no deal and hence on what are referred to as WTO terms. Sadly the WTO is not what it was, with the US not participating.

Global trade watchers are focussing on the deterioration in the USA-China inter-relationship and the adverse impact further trauma here could bring globally. The latest Chinese economic planning pronouncements refer to an enhanced focus on domestic growth acceleration, rather than external trade mega-acceleration as in recent years. This would be wholly consistent with the deterioration in US/Chinese relations.

An extended period of inward focus from China would require many companies across the globe to look again urgently at their supply chains and find replacements for Chinese components and services. That will pose difficulties, and costs, for all, and would ratchet up the adverse impact of a no deal Brexit. We would face deteriorating relations with long-standing EU partner nations just as we would need an increase in cost-efficient inputs from them; and would be hoping that they would be seeking the same from our corporate sector.

Would a US trade deal solve our problems? Dream on! UK trade with the US is not in the same ball park as our trade with the EU. And do we really hope for a deal with ‘America First’ Trump that would favour little old us?

The message has to be repeatedly hammered home. A reasonable UK/EU trade deal is essential for the UK’s recovery over the coming years. We must demonstrate that to achieve this outcome would also bring real benefits for our long-term EU trading partners.