Scots economic growth forecast cut as ‘world stumbles deeper in crisis’

By ERIKKA ASKELAND
Published on 25/06/2012 00:00

EUROPE’S debt turmoil has forced experts to downgrade forecasts for Scotland’s economic growth amid fears the world is “stumbling deeper into crisis”.

Growth in the Scottish economy is now expected to be reduced to a sliver at 0.3 per cent in 2012, down from a previous estimate of 1.1 per cent and lower than the tiny 0.4 per cent growth achieved in 2011, according to accountancy firm Ernst & Young’s Scottish Item Club think-tank.

The club warned that large companies are putting off their investment plans and are instead stock-piling cash.

Dougie Adams, senior adviser to the Scottish Item Club, warned: “There are fears that the world is stumbling deeper into crisis. The eurozone dilemma has entered a dangerous new phase, questions are being asked of China’s ability to avoid a property-driven hard landing and the US recovery can be described as lacklustre at best.”

The Scottish economy has also been undermined by a lack of support from the public sector, relative to the UK as a whole.

Public sector gross value added (GVA) north of the Border has increased by just 1.6 per cent since 2007, compared with growth of 4.6 per cent in the UK as a whole, the Item Club said.

Additionally, central government and local authority employment has fallen at a faster rate in Scotland since 2008. Headcount is down by 41,000 across these arms of government, representing a fall of almost 10 per cent in local authorities and around 4 per cent at local government level.

Adams said: “Scotland’s weaker public sector performance plays a part in explaining why the country has lost a disproportionate amount of jobs since the beginning of the crisis.”

The report also found a smaller export base is acting as an impediment to Scottish growth. While exports have been boosted by the fall in sterling and the success of the whisky industry has proved to be a boon, the narrowness of Scotland’s base of successful exporting companies will mean the nation’s ability to capitalise on sales abroad is weaker than that of the UK.

Jim Bishop, Ernst & Young’s Scotland senior partner, added: “This will limit growth in the medium term unless more Scottish companies invest in the exploration of development of emerging export markets, or more export-orientated companies can be lured to the country.”

The Item Club expects overall manufacturing output to stagnate in Scotland in 2012, while construction is forecast to grow in line with the economy at 0.6 per cent. The businesses services sector is expected to enjoy output growth of around 2 per cent, a little below its pace of growth in 2011 and well below its pre-crisis trend rate of growth.

Another survey released today found chief financial officers (CFOs) of private equity-backed businesses are less optimistic about growth in their firm’s revenue than they were a year ago.

According to a report by accountancy firm Deloitte, only 54 per cent of CFOs are optimistic about revenue growth over the next 12 months, against 70 per cent when asked last year.

Despite private equity firm KKR last week’s selling a stake in Alliance Boots to US giant Walgreen, only 4 per cent of CFOs expected to sell their companies, down from 12 per cent last year.