Comment: Rekindling growth is the key to a real recovery
TWIN announcements yesterday on unemployment and GDP would appear to offer conflicting messages on the health of the Scottish economy. News of a fall in the number of Scots out of work, however small, should be welcomed. Yet it comes against one of the toughest economic backdrops this country has even known.
Few will have been surprised to learn that economic output slipped back further in the opening months of 2012. The 0.1 per cent dip followed a similar contraction in the final quarter of last year, and means Scotland has now joined the rest of the UK in “double-dip recession” territory.
It’s a technical designation that will be lost on a public that has been grappling with muted or no wage growth, soaring food, fuel and energy bills and the spectre of redundancy for at least four years now.
On the basis of the latest statistics, Scotland’s recession has been shallower than the UK’s, which may suggest a greater resilience to both the global downturn and austerity measures put in place by the UK government.
Yet the prospects for any meaningful recovery appear dim. Last week’s survey from the Scottish Chambers of Commerce painted a particularly bleak picture, suggesting a weakening in business activity had taken grip in the second quarter with stagnation forecast for at least the rest of the year.
Figures released on Monday by insolvency outfit R3 predict that as many as one-in-four shops and almost one-in-five hotels across Scotland could go bust over the next year. Meanwhile, yesterday’s lacklustre Scottish Retail Consortium numbers suggest we are not going to be spending our way out of recession.
Suddenly, those Scottish Q1 GDP estimates, which lag the UK figures by some three months, look very dated.
Unemployment, though down for another month, remains a concern. At 8 per cent, Scotland’s jobless rate is near to the UK average but well north of figures for the eastern and southern parts of England and Northern Ireland. A stubbornly high rate of unemployment among younger people is a key challenge to medium-term growth prospects.
The fall in GDP was blamed squarely on a slump in the construction sector, where output tumbled almost 7 per cent in the first quarter. The figure is on a par with the UK-wide decline reported recently for May.
First Minister Alex Salmond has called for direct capital investment from UK Treasury coffers to allow the Holyrood administration to begin work on a raft of infrastructure projects – a plea echoed yesterday by industry leaders.
Scottish Building Federation chief executive Michael Levack argues, rightly, that a “dramatic slump requires radical action to turn things around”.
The coalition government at Westminster appears to have been listening to some of those private sector concerns, pledging to underwrite up to £40 billion of investment in infrastructure. It is hoped the backing will help kick-start schemes which have stalled due to problems raising funds.
For any of this to make any meaningful contribution to a recovery, or prevent a further economic slide, politicians must act decisively and act fast.
Crucially, the cash needs to de directed wisely. Economists have warned that the funds risk being frittered away on loss-making green-energy schemes or public transport projects that would never have been constructed without artificial support.
Richard Wellings, head of transport at think-tank the Institute of Economic Affairs, believes such infrastructure investment could end up “hindering economic recovery rather than promoting it”.
However, for major works to get off the ground in the current climate, radical funding options need to be embraced. Such projects have the potential to rekindle growth and take thousands off the dole queue.
Insurers seeking a place in the sun
Insurer RSA has warned of a £50 million hit after the summer washout resulted in more than 6,500 claims since June.
It says the worst-affected areas suffered storm damage, flooding and hail stones the size of golf balls.
With analysts warning of a surge in claims across the sector, and the rain still pounding down, loss-adjustors must be praying for an Indian summer.
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Weather for Edinburgh
Wednesday 22 May 2013
Temperature: 3 C to 13 C
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Wind direction: North west
Temperature: 5 C to 10 C
Wind Speed: 24 mph
Wind direction: North west