Two years to go before Scotland is recession-free
SCOTLAND will not get back to the prosperity levels it enjoyed before the financial crash until 2014, the country’s chief economist has warned.
But traditional Scottish prudence could see Scotland bounce back before the rest of the UK as households north of the Border have higher savings, according to Dr Gary Gillespie in his State of the Economy report yesterday.
The report prompted finance secretary John Swinney to repeat his calls for Chancellor George Osborne to pump billions of pounds into the ailing construction industry.
Scotland has followed the UK into a double-dip recession, it emerged last week.
The continuing uncertainty in the eurozone means a shadow remains over any prospect of recovery in Scotland, Dr Gillespie warns.
“A comprehensive solution to the euro crisis has still not been found,” according to his report.
The measures announced so far aimed at stabilising the currency are unlikely to be an end to the process, although a solution is expected to be found without the euro collapsing or any countries falling out of the currency union.
“Assuming a gradual resolution to the euro crisis coupled with a continued period of de-leveraging, we expect growth to be fragile through 2012, before picking up somewhat in 2013 and returning to near trend in 2014,” the report said.
“This would suggest that output will return to pre-recession levels in at some point during 2014.”
The outlook across the world remains fragile. Global finance experts at the IMF recently cut growth forecasts for most advanced economies.
Scotland may also be in a stronger position to deal with the “de-leveraging” in the economy, as governments, companies and the population at large re-pay debts racked up before the financial crash. But this could mean less spending in the wider economy and choke growth.
“In this regard, Scotland is possibly in a better position in comparison to the rest of the UK, given Scotland’s relatively stronger historic savings ratio compared to the UK as a whole, suggesting the possibility that Scottish households’ debt levels were not as high as in the UK,” the report adds.
And although Scotland witnessed a house price boom, like the rest of the UK, the ratio of house prices to incomes is lower, meaning household debt is likely to be lower.
The collapse of the construction sector has been behind the double dip in Scotland after this sector shrank by 14.1 per cent in past quarter compared with last year. Construction did show a recovery in early 2010 after a government “accelerated spending” initiative which saw money brought forward from future budgets in an effort to boost growth. But both public and private sector activity has fallen dramatically recently.
It is also unclear what impact the recent UK government and Bank of England measures, aimed at stimulating growth by improving credit and finance, will have, Dr Gillespie said.
Mr Swinney said: “The economy in Scotland is demonstrating a greater resilience than the UK, but global growth is forecast to remain subdued for the rest of this year, with improvements occurring through 2013.
“The global recovery is clearly fragile, but it’s important the UK government does more to address its failure to stimulate growth through delivering the capital investment that is needed to boost the construction sector and lay the foundations for recovery.
“Last month we announced our plans for a £105 million package of economic stimulus, which will maximise opportunities to create jobs and growth.
“We need the Chancellor to take action – follow Scotland’s lead – and borrow an extra £5 billion to invest in capital projects which would guarantee Scotland’s £400m-plus share would be allocated in this financial year.
“This government recognise that with the full economic and financial powers of independence we could maximise Scotland’s economic success and prosperity, in the meantime we need the UK government to adopt a Plan B and perform another budget U-turn.”
Unemployment has eased in recent months in Scotland, but the long-term jobless total has become increasingly acute since events in 2008.
The most recent figures indicate this has more than doubled to 67,000 since the downturn began to bite while overall unemployment stands at 215,000.
But Labour finance spokesman Ken Macintosh said the report shows “how little impact” the SNP government’s economic interventions have had.
“Whilst much of the blame can rightly lie at the door of 11 Downing Street, that’s no excuse for the SNP’s failure to address the real issues in Scotland’s economy,” Mr Macintosh said.
“The real problems affecting the construction industry are at the heart of these latest figures, and the SNP’s £100m cut to housing cannot have helped.
“Housing usually makes up around 40 per cent of the Scottish construction industry, but we’ve seen 12,000 job losses in that sector in the last year alone.
“This was a blunder by the SNP.”
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Wednesday 22 May 2013
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