Comment: Scottish chief economist’s tough task
Too downbeat an outlook might suggest Scotland is not faring well under Alex Salmond’s administration – or, if you prefer, wilting under the baleful influence of London; too sanguine a view could mean we need not opt for independence to put the economy to rights; or conversely, that it’s just an Osborne-rigged pre-election boom.
Such is the current state of Scotland, everything is viewed through the fracturing prism of the independence rammy. Nothing is neutral, or objective or straightforward: hot or cold, sunny or cloudy, there has to be an angle.
I do not envy his task one iota. Such considerations, of course, should play no part in a chief economist’s assessment. So let me summarise its findings as dispassionately as I can. His snapshot analysis, presented last week, is a fair and credible statement of where our economy is at, the dynamics behind it and its direction of travel. Without wishing to cause him difficulties, it is the most positive and encouraging assessment I have read from St Andrew’s House in 14 years.
Rarely has an economist been able to present such a positive outlook. It is not without caveats and conditions. But it is a fair, clearly presented, and, from what I can glean from my own sources and understanding, an accurate portrayal.
This year, he states, will be Scotland’s strongest year of growth since 2007. Against a backdrop of nearly two years of sustained growth, we have also seen an improving picture in the Scottish labour market with increases in employment and economic activity.
This view was duly validated by subsequent labour data last week showing employment in Scotland at a record high, rising by 63,000 over the year to stand at a rate of 73.5 per cent – higher than the UK rate of 73 per cent. The number of people out of work in Scotland fell by a further 2,000 to 6.4 per cent in the last quarter, a further indication the economy is recovering strongly.
Most indicators, says Gillespie, “point to a continuation of an improving economic outlook. Forecasts for the Scottish economy have been revised up with an expectation that growth will accelerate this year”. Forecasts are for job creation to carry on throughout 2014 and the growth in demand “should also hopefully support the first sustained rise in earnings since the financial crisis”.
He concludes: “The overall picture is of the economy continuing to strengthen, and there is now a more confident outlook for 2014 and beyond.”
Given all the storms before, this is heady ambrosia indeed. Dare we follow the Galloping Gary through these perfumed glades? I should warn that an economist is lucky indeed if he gets to do this just once.
There are caveats to all this, and there are bits missing. It has taken a long time to get here – the tardiest recovery from recession in living memory. Big challenges remain. Chief among these is the extent – minimal so far – of a rebalancing by households and across the wider economy.
Real wages are still well below pre-crisis levels and we have yet to see any significant upward movement. A large number of people are still looking for work or seeking to work longer hours than currently. Bank lending is still sluggish. And export prospects are blighted by the chronic inability of the Eurozone – our biggest export market – to mount a sustained recovery. Latest pointers show Germany is now experiencing a downturn, while the European Central Bank fiddles and procrastinates and delays over monetary easing.
Meanwhile, one area of the economy which has not yet been the focus of attention is due careful scrutiny: the growth in the numbers of self-employed and (until recently) the growth in business start-ups.
In the early stages of the upturn this was viewed as a negative: a function of labour shedding and downsizing by companies, forcing those made redundant to attempt to strike out on their own. These were seen to be not entrepreneurs in the classic sense, more laptop desperadoes forced to augment redundancy money and savings by setting up as independent consultants or service providers. But this was to turn a blind eye to two developments: first, to the growing preference for outsourcing that is unlikely to reverse itself any time soon; and second, to the effect of the continuing revolution in information technology and the opportunities that the digital age has made possible.
Only a few years ago a start-up company was very much bounded by physical limitation: you built up the business in the immediate locality first, then pondered expansion to other areas of Scotland and finally (if at all) considered cross-border exporting.
Today these physical boundaries have all but disappeared. Micro-businesses today can use the internet to market to customers beyond our shores, starting perhaps with the Scottish diaspora overseas. Through the worldwide web even small firms can obtain a global presence and reach.
Last year saw a surge in business start-ups in Scotland. Business incorporations are at a record. Now there are signs of a slowing of the pace. The latest edition of Edinburgh Economy Watch, for example, reveals a 6.3 per cent fall in business incorporations recorded in the capital over the three months to July, compared with the same period in 2013. And business start-ups supported by Business Gateway in the city are down by more than a third on the same period of 2013.
Future State of the Economy assessments could usefully look at this economic sector to assess what the future holds and provide a guide for policy. It’s long overdue. That aside, for the moment, and barring “events”, the economy looks set to follow the lead of our Galloping Gary.