CBI predicts worst of recession is over, but Scotland 'won't perk up until next year'

Published on Sunday 14 June 2009 21:42

THE CBI today predicted that the worst of the recession is over – upgrading its growth forecasts for the first time in two years – but warned that Scotland could lag behind.

In its latest quarterly economic survey, the CBI reiterated its forecast that Britain would return to growth in the first quarter of 2010, and added that the Gross Domestic Product (GDP) is likely to contract only marginally in the second half of 2009.

But David Lonsdale, assistant director for CBI Scotland, said that Scotland's economy would "not perk up until well into next year".

The CBI's UK-wide report said that after shrinking by more than 2 per cent in the second quarter, GDP will contract only marginally in the last six months of this year – 0.1 per cent over two quarters – before rising by 0.1 per cent in the first three months of 2010.

While previously anticipating growth at the start of 2010, it increased its forecast for the rate of growth in each of the following three quarters, predicting it will rise by 0.7 per cent by the final quarter of next year.

In the previous eight quarterly surveys, the CBI's revisions of earlier growth forecasts had all been flat or negative.

Director general Richard Lambert said: "The harshest period of the recession looks to be behind us, the economy is stabilising and this should continue during the second half of this year."

The 0.7 per cent growth in GDP forecast in the final quarter of 2010 is what the organisation regards as "trend growth", suggesting a return to normal economic conditions.

However, Lonsdale said: "With the wider UK economy still in the doldrums, the likelihood is that Scotland's economy won't perk up until well into next year.

"These latest figures underline the need for government at all levels to continue to do all they can to aid businesses through the downturn and to prepare Scotland to take full advantage of the recovery when it comes. Every policy and spending decision must be tested against a single benchmark – will it aid the economic recovery?"

UK-wide, Lambert warned that conditions were still some way from "sustainable economic growth" and said he was still "anxious" about the continuing rise in unemployment, predicted to be more than three million people midway through 2010.

Lambert said the prospects for public spending also gave reason for caution, with the economy facing either a sharp cut in government spending or a rise in taxation, "neither of which gets the hearts of entrepreneurs racing".

Ian McCafferty, the CBI's chief economic adviser, warned that there was uncertainty as to whether recent increases in demand were sustainable.

In the last six months, many manufacturers had dramatically "destocked", cutting production to clear the backlog of unsold products. While this had increased short-term cash flow, the process was substantially complete, and companies would now be more reliant on debt from banks for working capital.

McCafferty also warned that a recent rise in the price of oil could curb growth, with crude trading at above $70 a barrel last week.

Vince Cable, the Lib Dems' Treasury spokesman, said the report showed government claims that the economy was in recovery were premature.

He said: "It would be foolish to talk about a recovery in the traditional sense because the banks are still not working properly. There are also new threats ahead, potentially including inflation because of rising oil prices."

Stabilisation of economy but 'risks remain'

FINANCE Ministers from eight of the world's most powerful nations signalled a belief that the global economy might be stabilising, but warned that "significant risks remain" to a sustained recovery.

A communiqu issued after the Group of Eight (G8) finance ministers meeting in Lecce, Italy, said at the weekend that a number of indicators such as recovering stock markets and interest rates spreads suggested economies were stabilising. However, it also warned unemployment might continue to increase even after economies start growing again.

The meeting also discussed the need to come up with "strategies for unwinding the extraordinary policy measures taken to respond to the crisis", a reference to the bail-outs of the banking sector and other government stimulus packages.

Ministers said "exit strategies" from the rescue packages were essential "to promote a sustainable recovery over the long term" and to counter a growing risk of inflation.

While the International Monetary Fund has been asked to find a way to exit the stimulus packages Chancellor Alastair Darling said there was only a brief discussion of the subject and an exit was "some way down the track".

The G8 is made up of Canada, France, Germany, Italy, Japan, Russia, the UK and US.