Bill Jamieson: Doomsayers may be exaggerating Scotland's worries

IT IS the consensus view across the political class in Scotland that we are entering something akin to an ice age for the economy. Spending cuts will bear down particularly heavily here and there is little prospect of a private-sector recovery being able to replace jobs on anything like the scale being lost.

Here, then, are some points to chew on:

• In the year to June 2010, while public-sector jobs across the UK fell modestly by 18,000, private-sector employment rose by 380,000;

• In Scotland, the numbers of those economically active in the 16-64 age group rose by 23,000 in the three months to August, taking the total to 2.68 million or 77 per cent of the population in that age range. The percentage figure is higher than most other regions of the UK including London, higher than the UK average and evidence of remarkable resilience in the face of a severe recession and slow recovery.

• New jobs are being created. Last month brought news of plans by Barclays to create up to 600 jobs in Glasgow, plans by Virgin to create 200 jobs in Edinburgh, Jet2 to create 150 jobs at Glasgow airport, a 150 million contract for North Sea pipelines and a 40m whisky distillery in Moray. There are many more itemised in the indispensable Scottish Economy Monthly Report from Mackay Consultants. I have selected from the main ones.

• put these three paragraphs "up front" because I suspect that, once the reactions are in to the Comprehensive Spending Review tomorrow, many will be wondering whether life will be worth living, never mind whether the private sector will be able to pick up the slack.

• do not doubt the spending cuts will be painful, or that Scotland will be disproportionately affected, or that the economy will struggle to achieve much in the way of growth next year.

But a double dip recession is still not the consensus forecast. Public spending will continue to grow in cash terms and the effect on the private sector will be less bad than feared. And businesses across the UK are in a rather better state of financial health than is generally realised.

I would be much more worried if business was facing a liquidity crunch and had no cash resources available for investment. But this is not the case. While there is certainly a problem with small companies - those with cash needs of 100,000 or less - "corporate UK" is not strapped for cash.

Figures earlier this month showed that the net rate of return on capital for non financial companies rose from 11 per cent to 11.6 per cent between the first and second quarters. The rate of return on capital is well ahead of the cost of capital. In addition, sharp cost cutbacks in 2008-9 and investment pullbacks have enabled firms to improve corporate liquidity. This points to a relatively early business investment pick-up - and one not as dependent as initially feared on an upturn in bank lending.After falling 23 per cent year-on year in the fourth quarter of last year, Citigroup economist Michael Saunders expects business investment will be up between 9 and 10 per cent year-on-year in the current quarter and that it will maintain a similar pace in the first three months of 2011.

Last week the British Chambers of Commerce reported that capacity use is rising and is above average in both the manufacturing and service sectors. Investment intentions have also picked up sharply over the past year among both small and large firms. A survey of chief financial officers by accountancy giant Deloitte also shows a sharp improvement in investment intentions. "Profitability has held up relatively well in this downturn," says Saunders. "Now, with investment very low, capacity use above average and corporate liquidity rising markedly, we expect that business investment is likely to rebound relatively early."

And across the quoted company sector there is growing confidence about prospects in 2011. The bottom-up consensus forecast among equity analysts for medium-term profit growth by UK companies has surged from 4.2 per cent year-on-year 12 months ago to 15.9 per cent now. Recent readings are said to be the most optimistic since records began more than 20 years ago. This might be put down to the irrational exuberance of "teenage scribblers". Saunders reckons it reflects greater confidence among the companies analysts are talking to. Prospects may not be as dire as many fear.