{"id":12470,"date":"2021-06-09T01:01:00","date_gmt":"2021-06-09T00:01:00","guid":{"rendered":"https:\/\/www.economicsobservatory.com\/?post_type=question&p=12470"},"modified":"2022-02-04T10:21:50","modified_gmt":"2022-02-04T10:21:50","slug":"what-are-the-big-economic-challenges-facing-the-new-welsh-government","status":"publish","type":"question","link":"https:\/\/www.economicsobservatory.com\/test\/what-are-the-big-economic-challenges-facing-the-new-welsh-government","title":{"rendered":"What are the big economic challenges facing the new Welsh government?"},"content":{"rendered":"\n

Despite the gradual re-opening of the economy and easing of restrictions over recent weeks and months, the pandemic continues to take a heavy toll on the Welsh economy. Output remains well below pre-pandemic levels, especially for the hardest hit sectors. A significant share of the workforce \u2013 159,000 workers as of the end of March \u2013 continues to be on furlough through the Coronavirus Job Retention Scheme.<\/p>\n\n\n\n

The outlook for the economy and the labour market remains uncertain, but dealing with the economic effects of Covid-19 will be high on the agenda for the new Welsh Government. Economic recovery also sits alongside the need for improvements in public services, particularly in health and education, which are likely to demand increased spending and therefore create huge fiscal pressures over coming years.<\/p>\n\n\n\n

How has the pandemic affected the Welsh economy?<\/h3>\n\n\n\n

The latest Office for National Statistics (ONS) data<\/a> on the GDP performance for the countries and regions of the UK cover up to the third quarter (July to September) of 2020 (ONS, 2021<\/a>). As Figure 1 shows, Welsh GDP made a significant recovery in the third quarter of 2020 (14.4%), although only in the context of a contraction of historical magnitude in the previous quarter (-15.2%). Although Wales experienced the smallest rebound, it is worth noting that the initial decline in Welsh GDP was somewhat lower than that registered across the UK.<\/p>\n\n\n\n

Compared with the same quarter in 2019, Welsh GDP in the third quarter of 2020 was 6% smaller than the previous year \u2013 less of a reduction than for the UK as a whole (7.5%).<\/p>\n\n\n\n

Alongside these latest GDP estimates, the Welsh Government has published short-term output indicators<\/a> for key areas of the Welsh economy: construction, which accounts for 8% of the Welsh economy; market services, which accounts for 45%, including distribution, financial and insurance activities, and accommodation and food services; and production, which, at 20% of the Welsh economy, mainly consists of manufacturing. The indices can be used to gauge key trends and short-term movements in the output of companies in these sectors in Wales.<\/p>\n\n\n\n

In the fourth quarter (October to December) of 2020, the index of construction, which measures output in the sector, rose by 8.7%. The indices of market services and production both also grew slightly, at a rate of 0.9% and 0.5%, respectively. Overall, the index of market services decreased by 8.4% on an annual basis, representing the largest fall since the series began (see Figure 2).<\/p>\n\n\n\n

Figure 1: GDP growth for the UK nations, seasonally adjusted quarter on quarter <\/h4>\n\n\n
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