Scotland will toil to raise itself out of recession, report warns

Published on Thursday 25 June 2009 00:13

SCOTLAND'S leading economic think tank has questioned whether Scotland has the capacity to lift itself out of recession into full recovery.

The Fraser of Allander report into the state of the Scottish economy, published yesterday, argued that Scotland will have a very weak recovery from the economic downturn, compared with the rest of the UK.

It came as the Organisation for Economic Co-operation and Development (OECD) predicted the UK economy would contract by 4.3 per cent this year.

This was a gloomier forecast than the UK government's predictions of a 3.5 per cent fall in output and worse than any other major developed country.

The Fraser of Allander assessment for Scotland was illustrated with a prediction that a total of 136,000 jobs would be lost in 2009 and 2010, but there would be an increase of only 38,000 in the following two years.

By 2012 the experts from Strathclyde University and PricewaterhouseCooper (PwC) suggested Scotland's growth would be 1.4 per cent, compared with a UK average of 1.9 per cent.

It added that 2008 levels of economic activity in Scotland might not return until 2015. It said Scotland's problem was due, not to the collapse of the banks, but to a nosedive in manufacturing, particularly electronics.

About 50 per cent of production was wiped out in Silicon Glen between 2000 and 2008, leaving the Scottish economy over-reliant on the service sector. They said they believed manufacturing would lead other countries out of the recession, but questioned Scotland's capacity and quality in that field.

Professor Brian Ashcroft, of Strathclyde University, one of the report's authors, said: "A key question here is whether Scottish manufacturing capacity, in particular, has the size, diversity and capability to take advantage of the recovery."

He said this "poses a policy challenge" to the Scottish Government, adding that it is "essential" that Scottish ministers and their agencies started to push to bring in inward investment.

He warned that the successful life-sciences sector was too small to push forward a recovery and that there were still questions over whether new product areas such as green energy and the creative media would make a significant contribution, because their development might not happen.

PwC senior partner Paul Brewer added: "The Scottish Government needs to take advantage of the low value of the pound to tell companies coming in that start-up costs will be low."

A spokesman for First Minister Alex Salmond said: "The Scottish Government is doing everything within its powers to fight the recession. Our Economic Recovery Programme is supporting 15,000 people across the Scottish economy."

&#149 Millions of pounds of lottery cash is to be used to help families cope with the worst effects of the recession, it was announced yesterday.

The Big Lottery Fund is to invest about 4.45 million in projects supporting communities as they struggle with the impact of the economic downturn. Existing grant holders and applicants will benefit from the cash, which is part of a 43m UK-wide package targeting the young, vulnerable and the out of work.

Enterprise minister Jim Mather welcomed the "timely investment" from the fund.