Analysis: Rough road stretches out for local and global economies

By DAVID BELL
Published on 27/06/2012 00:00

IT WOULD be five years of continual slow growth. Output is only just recovering from 2007 and we are still below the level of GDP from 2007.

We are very much just treading water and the economic conditions in Europe don’t look good, with Asia and the United States also looking uncertain.

As far as Scotland goes, the key question is where the demand is going to come from. The trouble is, we know some areas are going to increase in cost, such as health and social care, due to an ageing population. Other costs could include renewable energy infrastructure.

There has already been a lot of pain and there is likely to be another spending review after the most recent one. There is likely to be more of the same for local government.

Perhaps we are seeing the lack of wisdom of cuts to capital expenditure, which has affected growth. Welfare and health are huge elements of spending and what Sir Mervyn is doing here is ramping up the discussion on welfare cuts.

There’s a possibility we could see areas of health and welfare spending affected by this lack of growth and increased austerity. It’s likely to be unpopular and would probably be referred to as efficiencies, but would really be cuts in any other name.

On the eurozone, there’s a real question of the knock-on effect of the Cyprus situation on the economic instability in the eurozone and the demand for UK goods will inevitably fall because of this.

Of course there’s also an argument that any more cuts would drive the economy further into recession. In many ways it’s a case of being caught between a rock and a hard place.

• David Bell is professor of economics at Stirling University.

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