Dire exports 'pose threat to recovery'

SCOTLAND'S "dismal" record on exports over the past ten years will pose serious challenges to the economy's ability to bounce back from the recession, an influential group of economists warns today.

The Ernst and Young Scottish Item Club, which is the only group to base its analysis on Treasury models, blasts Scotland's failure to build an adequate export market over the last decade as it warns that the Scots economy will underperform that of the rest of the UK for the next two years at least.

The group points out that Scottish exports have dived 30 per cent since 2000 despite a doubling of world trade volumes since 1995.

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Although many Western countries have struggled to compete with new economic powerhouses such as China and India, the Item Club says Scotland's track record is particularly poor. Exports account for only 20 per cent of Scotland's GDP against 30 per cent for the rest of the UK.

The group warns that Scotland's insubstantial export base will weaken its growth prospects over the next few years – particularly as the public sector, which has accounted for more than 30 per cent of GDP growth since 2000, is facing some of its toughest budget cuts for decades.

The Item Club forecasts that the Scottish economy will grow just 0.8 per cent this year, compared to 1 per cent for the rest of the UK. In 2011 and 2012 it expects the Scottish economy to expand by 2.3 per cent and 2.9 per cent respectively, but this pales against 2.7 per cent and 3.4 per cent growth predicted for the UK as a whole during the same period.

Although the weak value of sterling is expected to give the limited number of Scots businesses that do sell abroad a boost over the coming year, Dougie Adams, senior economic adviser to the Item Club, argues that the proportion of firms targeting markets abroad is disproportionately small.

"Sterling is not an answer in itself," Adams said. "That's the whole point about the challenge we face because we have become a much less export-orientated economy. One of the things that is going to hold Scotland back is we don't have that base of exporters."

The Item Club's damning verdict is likely to raise questions over the efficacy of government-funded bodies such as Scottish Development International (SDI) which put millions into trade missions and other supportive initiatives.

David Smith, interim chief executive of SDI, said: "One of the most obvious reasons for the significant decline in manufactured exports over the past ten years is due to the reduction in the electronics manufacturing base in Scotland.

"SDI continues to look at ways it can broaden Scotland's exporter base and support companies to achieve greater success overseas. Market awareness events, account management support through Scottish Enterprise and Highlands and Islands Enterprise and programmes such as SMART Exporterall support export growth in Scotland.