Unemployment pain will linger 'for eight years'

Published on Saturday 6 June 2009 14:23

THE jobs fall-out in Scotland is likely to drag on until well into the next decade, according to an influential team of economists who say it will take another eight years for employment in Scotland to reach the same level as in 2008.

Dougie Adams, economic adviser to the Ernst & Young Scottish ITEM club, warns of a bleak outlook on the jobs front in the club's summer report published today.

"While there have been some early signs that the Scottish economy is beginning to stabilise, like the rest of the UK, the patient is still a long way from recovery and there is more pain to come in the form of significant job losses."

He adds that Scotland faces a further weakening of the labour market and a sharp rise in unemployment over the next two years. There is no certainty that the worst will be over by 2017 because the impact on jobs as a result of the inevitable cost cutting by banks is still unclear, Adams warns.

According to E&Y, the current economic crisis is expected to "cast a long shadow" over Scotland's labour market, with unemployment expected to peak at more than 230,000.

The business services sector, covering everything from law and accountancy to IT, employs around 370,000 and is likely to play a crucial role in the eventual recovery of Scotland's labour market. However, its growth depends on financial services and sustained demand from the public sector.

E&Y expects the number employed in financial services to drop to 84,000 next year from 94,000 in 2008.

Adams says: "There is a big question mark over professional services, partly because of their dependency on the public sector."

He explains that the outlook for Scotland's economy could be worse than expected because of the potential for long-term cost cutting by the public sector which has a huge deficit to deal with.

"Scotland would be relatively vulnerable to an approach that pressures the budgets for public service – a sector that contributes to over 22 per cent of Scotland's economy and employs almost 30 per cent of the workforce."

Despite concerns over unemployment, E&Y expects Scottish GDP to rise in 2011. It says the economy will contract by 3.1 per cent this year, followed by a year of stagnation in 2010.

Its report has found that the performance of the Scottish economy has closely resembled the rest of the UK over the past nine months and has not been sheltered from the worst effects of the credit crunch.

Both economies have been hit hard by the collapse in world trade and the difficulties in accessing credit, but the report is "cautiously optimistic" that a corner has been turned.

It says there are indications that the unprecedented fiscal stimulus packages introduced by governments across the globe are beginning to have an impact. For example, the rate of decline in manufacturing output appears to be easing.

Adams says: "The short-term outlook is still one of negative growth and the labour market remains extremely weak."

The Scottish housing market will continue to be hit by the economic storm with prices down by around 14 per cent from their peak in the second half of 2007 and worse to come.