G8 has got the lowdown on everything but the slowdown

SCOTLAND has been battening down the hatches so tightly for this week's G8 summit in Gleneagles it will be surprising if world leaders see much of the country at all. Road blocks and closures are the order of the day, along with armed escorts for the G8 leaders from Prestwick airport to a Gleneagles surrounded by steel fencing and police with guns.

The nearby town of Auchterarder has boarded itself up, as have large parts of central Edinburgh. Shops and offices are closing for the duration, fearful that peaceful demonstrations will turn violent and unsure whether staff will be able to make it to work through the security cordons.

MSPs and employees at the country's two largest financial institutions - Royal Bank of Scotland and Standard Life - have been advised to 'dress down' for the duration of the G8 summit. It would be dangerous to walk around the capital in suits and with briefcases lest they be mistaken for outriders of global corporations grinding the poor.

The Scottish Parliament is surrounded by security fencing and in the Royal Mile, businesses are caught in the worst of traps, uncertain whether to stay open for the prospect of record takings or board up for fear of their premises being trashed. In the doorways, the city's winos swig from bottles of Buckfast and roar at passing journalists from Le Monde and La Repubblica that they can have an exclusive interview with George Bush.

It is hardly 'welcome to Scotland' week. And the dislocation and inconvenience has not gone down well with residents, particularly as the entire G8 caravan complete with hundreds of thousands of demonstrators was initially encouraged as a means to promote tourism. Bob Geldof's followers will find it hard even to send a 'Greetings fae Scotland' postcard to friends who couldn't make it: the pillar-boxes along the Royal Mile have been nailed up for the past week.

All this adds to the growing sense of disconnection and unreality that now surrounds this G8 summit. So long have the respective government spin machines concentrated on flamming up 'historic accords' stories about African debt and global warming that the most immediate and pressing threat is closing in unnoticed: a general and intensifying global slowdown. This threatens to undo all and more of any debt relief gestures. Yet the obsessive concern with gesture politics, aided by the BBC, seems quite unaware or unconcerned over the storm cones being raised.

That is unlikely to change this weekend. Since so many shops in Edinburgh are being boarded up for the duration of the G8 it is not easy to see the more insidious boarding up that comes with a slowdown. The CBI's Distributive Trades Survey last week showed that retail sales in June suffered their worst year-on-year fall in the survey's 27-year history. Retailers expect July will be little better.

Hard on the heels of this came downward revisions to UK GDP figures, showing growth in the first quarter down from a previous estimate of 0.6% to 0.4%. Chancellor Gordon Brown now needs to see the economy grow at an unprecedented rate if he is to meet the growth forecasts he made in the budget. Interest rate cuts (and a weaker pound) now loom as, of course, do tax rises.

It is, however, the global picture that is more worrying even though it is likely to get scant attention in those G8 communiqus. Central banks are increasingly concerned at the worrisome medium-term trends in fiscal policy in the majority of industrial countries.

In the US, Federal Reserve chairman Alan Greenspan has warned of the dangers if the administration and Congress fail to rein back Federal borrowing. And on Thursday he raised the Fed Funds Rate to 3.25%. The Bank for International Settlements is in little doubt as to why the brakes need to be applied: "The US economy", it said in its annual report last week, "has arguably become over-dependent on consumer spending, borrowing and the extraction of equity from housing wealth. This is particularly so because, in aggregate, an increase in house prices does not boost national wealth in the same way as investment-based saving from income and increases in productivity".

Meanwhile the European Central Bank looks set to poop the party on an apparent bottoming out of poor economic data in France and Germany by holding out against pressure to cut interest rates. Euro area industrial confidence showed a small improvement, which could be the harbinger of a turnaround. And unemployment in Germany saw a fall of 23,000 last month. But much of this is due to state intervention to force the unemployed into community works at symbolic pay. And French consumer confidence has also ebbed lower. The ECB looks likely to hold interest rates at 2% this week - and, indeed, to keep rates at this level until next year.

There are two reasons for G8 leaders to be worried. First is the way in which continuing rises in the price of oil will work to depress domestic demand and exacerbate the slowdown already under way. Leading indicators across the industrialised world have been falling for months, suggesting that economic and profits growth have well and truly peaked. Near term inflation risk is keeping the Fed in "measured" rate tightening mode.

The second is in the area of second wave effect from the current combination of ultra low bond yields and slowing demand. The BIS found six respects in which the current situation parallels the late 1960s and early 1970s. What gives disquiet about this is that the early 1970s led to a serious and debilitating outbreak of inflation with hugely damaging consequences for economies and markets. Stagflation was the result.

Search at the G8 summit for some address to these problems, or even a post box to mail them in. You will search in vain.