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Tony predicts activity in some industries to pick up again during 2022.

It is a very strange time for the Highland economy because of the impact of the pandemic.

Annual economic growth averaged about two per cent in the past decade. However, in 2019 it was only 0.6 per cent and in 2020 it fell by approximately 6.8 per cent.

The latest average forecasts for Scottish economic growth are 6.5 per cent in 2021 and 3.8 per cent in 2022. The general belief is that the economy will return to its pre-pandemic level by spring.

However, the new omicron virus will almost certainly delay that return. The impact is very difficult to predict.

The Highland economy did even worse than Scotland in 2020 and 2021. The main reason for that is the greater importance here of the tourism industry, which has been badly hit by the pandemic. The number of visitors from overseas has fallen enormously, with the inevitable loss of business for local hotels, B&Bs and shops.

The latest business survey by Highlands and Islands Enterprise (HIE) shows that 64 per cent of local firms were confident about the economic outlook but 34 per cent were not.

Some 45 per cent of the businesses were striving for growth; 45 per cent content with their current level of performance; and nine per cent wanted to downsize.

The service sector accounts for about 75 per cent of regional economic output and employment. Other local service industries have done much better than tourism.

Public administration is very important because of bodies such as the Highland Council, Highlands and Islands Enterprise, and NatureScot. Their finances have been protected by assistance from the Scottish and UK governments, and I expect that to continue.

However, the work from home policy has had significant local impact. Shops and other businesses in Inverness have suffered, whereas those in smaller towns such as Dingwall, Alness and Nairn have benefited.

The manufacturing sector accounts for about 20 per cent of regional economic output and employment. It has done surprisingly well recently and I am optimistic about its fortunes in 2022. Various local companies have announced investments recently.

A good example is the Scotch whisky industry. There have been a surprising number of new developments, including a new distillery in Inverness in Haugh Road and an expansion by Glenmorangie in the Tain area.

Other new manufacturing investments have been announced by Norbord at Dalcross, Scottish Salmon Company in Applecross, Orbex in Forres and Global Energy Group at Nigg.

In contrast, the construction industry, which accounts for about five per cent of regional economic output, is going through a bad period. There has been a big fall in housebuilding. There are some new developments, such as the Dalcross railway station, but overall I expect the industry to have a quiet 2022.

Other industries such as agriculture and fishing account for less than five per cent of regional economic output. They are suffering from Brexit and I expect little change in the next year.

Overall, therefore, I expect modest economic growth of about three per cent in 2022. It will take a few more months before we return to pre-Covid levels of 2019.

• Tony Mackay is an Inverness-based economist.

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