Bill Jamieson: Here’s how the world is leaving Scotland behind

Shoppers take to Glasgow's Buchanan Street, but Scotland's retail sector is one of several poor performers (Picture: John Devlin)
Shoppers take to Glasgow's Buchanan Street, but Scotland's retail sector is one of several poor performers (Picture: John Devlin)
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Economic optimism about the global economy doesn’t extend to Scotland, writes Bill Jamieson.

Few forecasts should have more cheered Scottish Government ministers in their efforts to boost Scotland’s trade and profile overseas than the upbeat International Monetary Fund (IMF) forecast for the world economy this week.

It predicts that 2018 will be the strongest year for global growth since 2011, hitting 3.8 per cent. That’s an encouraging backdrop for Scotland’s exporters. And the IMF has even made a modest upgrade for growth in the Brexit-bedevilled UK – up from 1.5 per cent to 1.6 per cent.

Given the IMF’s past form, readers have cause to be a tad sceptical about its forecasts. Remember Christine Lagarde’s scary warning of our prospects at the time of the Brexit vote – “really, really bad”? Now the forecast is altogether more measured. And several independent expert groups have also been nudging up their UK growth forecasts in recent weeks. These, of course, are still below our long-term trend growth rate of two per cent and barely cause for cheer among UK ministers. But the direction of travel looks more encouraging than it did in the immediate wake of Brexit and the Office for Budget Responsibility’s grim forecasts last November – though this, too, has also been nudged higher.

But what cheer can Scottish ministers take from the IMF’s global numbers? Very little, when they look at latest numbers on Scotland’s economic performance released this week. The number of people in work in Scotland fell by 17,000 between

December and February, with the employment rate marking time at 75 per cent. By contrast, across the UK as a whole, employment rose by 55,000 over this period, the highest figure since records began in 1971. This gave an employment rate of 75.4 per cent – just above Scotland’s rate.

READ MORE: Scots economy enjoys full year of growth

Meanwhile there were 115,000 Scots classed as unemployed and looking for work – after a rise of 3,000, taking the unemployment rate up to 4.2 per cent.

Until recently, Scotland’s labour market had been performing slightly better than the UK overall, working to mask a continuing poor trend in economic performance, both in absolute terms and relative to the UK. Latest figures not only show pronounced poor growth in the Scottish economy last year – growth of just 0.8 per cent, well below the UK’s 1.8 per cent – but also a continuing poor performance stretching back years. Nor does the future look any

better: the Scottish Fiscal Commission says Scotland’s economy will grow at less than 1 per cent per year until 2022.

According to analysis by economist John Maclaren, after adjusting for the abnormal short-lived upturn in construction activity, Scottish growth has been very poor, at just under one per cent a year in both absolute and relative terms for three years.

Indeed, he adds, the position is little better looked at over the past eight years, with annual growth averaging just 1.1 per cent. By contrast, the UK has grown by around double this rate – two per cent a year – over the past 3 years (or over the past eight years). Notable weak spots have been manufacturing, in particular since 2014; transport and communications, going back to 2003; retail since 2012; hotels and catering going as far back as data is published (1998); business services post 2009, and health and social work after 2009.

The sluggishness in business services is particularly worrisome, for even though it has been the strongest growing sector of the Scottish economy since 2009, its growth rate (2.5 per cent a year on average) is well behind that seen at the UK level (5.6 per cent).

READ MORE: Flatlining growth paints grim picture for Scottish economy

And, in terms of GDP per head (standard of living), Scotland has now experienced no change since the start of 2015, compared to a rise of 3.2 per cent seen for the UK over the same period.

Private sector services – in particular retail, hospitality, communications and business services – have badly underperformed in relative terms. Government ministers have not been inactive. Infrastructure projects have been launched, more funds given to skills and apprenticeship training, support pledged for regional enterprise initiatives and – yet again – life has been breathed into a Scottish investment bank. But despite all this, Maclaren concludes: “Current Scottish government policies seem unlikely to do much to remedy this. Meanwhile the lack of understanding, or interest in, why this has happened remains of worry.”

The state of the domestic economy has been cited as a barrier to growth in a survey by the Federation of Small Business (FSB) in Scotland. It singles out a “punishing” tax regime imposed by ministers that is hurting smaller firms. “Scottish firms are still gloomy about prospects,” says FSB Scottish policy convener Andy Willox, “and far less optimistic than the average UK business. If we’re to restore Scottish confidence and turn firms’ investment ambitions into reality, we need to do more to reassure our business community.”

What should the Scottish Government now do? Prioritise economic development for starters – this has not always been evident. Higher growth boosts tax revenues and funds available for the SNP’s social ambitions.

Stop hiking taxes is another no-brainer. Increased tax rates for middle to higher earners, coupled with rises in council tax, constrain household incomes and intensify the decline in the high streets.

Cutting the rates burden on retail outlets would help staunch the exodus. Suspending parking charges would be another. Push on with improvements in digital connectivity and make skills and apprenticeship training more effective. Give a sharp prune to the knot-weed of initiatives and strategies (16 at the last count) which confuse policy.

Meanwhile there are positives from which we can take heart. The UK has notched up the strongest half-year productivity performance since 2005. Business investment and exports across the UK hit a record high last year. Consumer price inflation fell in March from 2.7 per cent to 2.5 per cent, the lowest rate in a year; and the squeeze on personal budgets may be coming to an end as wages rise. Average pay was 2.8 per cent higher in the three months to February than it was a year earlier. Wage growth is the strongest since the summer of 2015. So there are reasons to hope that the tide may at last be turning for households.