‘Lost decade’ fears grow for Scotland

SCOTLAND is heading towards a “lost decade” of anaemic economic and jobs growth as the Eurozone crisis, disappointing exports and a prolonged squeeze on household budgets lead to a “grinding recovery”, a major report will warn tomorrow.

The latest forecast from the influential Ernst & Young Scottish Item Club will paint a depressing picture of the country’s prospects over the next ten years, with employment rates tipped to continue their downward slide as the country also deals with a substantial rise in the working population.

There are profound fears for youth unemployment as 85,000 further Scots join the workforce over the next three years, at a time when jobs growth will be “sluggish” at best.

Any hopes of a fast rebound from the downturn are a “pipe dream”, the report will say, as export performance lags and Scottish firms remain heavily reliant on the embattled Eurozone for overseas sales.

Dougie Adams, senior economic adviser to the Item Club, expects the Scottish economy to have expanded by only 0.6 per cent this year and tomorrow’s report will also see a heavy downgrade in growth expectations for 2012, from 1.9 per cent to 1.1 per cent. This compares with an expectation of 1.5 per cent growth for the UK as a whole.

Adams admitted even the revised forecast was more optimistic than that of most other economic groups, with the Office for Budget Responsibility admitting in last week’s Autumn Statement that UK GDP was likely to slump to 0.7 per cent next year.

Over the past two years, Scotland’s economy has recorded half the growth generated by the UK economy, expanding by 1.4 per cent compared to 2.8 per cent.

The Item Club’s study is based on hopes European policymakers will solve the Eurozone deadlock but Adams said the risk of collapse in the 17-country bloc was high.

If Europe descended into chaos, the result would be worse than the 2008-09 banking crisis, he said.

“While there is an intention [among European politicians] to do something, the chance that we have an accident before we get there is quite high,” Adams told Scotland on Sunday.

Although Scotland’s economy may record growth of 1-2 per cent in the years up to 2021, this will not compensate for the colossal losses incurred since the outbreak of the credit crunch, Adams said.

“The economic losses are eye-watering. The cumulative loss in GVA to Scotland since the beginning of the financial crisis amounts to around £40 billion. That equates to a £17,000 loss for every household in the country.”