Can Scotland avoid recession? The issue is about to test our newly enhanced powers over tax and spending. How could these be deployed to avoid or mitigate the further decline in activity and output forecast both by the Fraser of Allander Institute and the Ernst & Young (EY) Scottish Item Club?
Last week the FoA revised down its forecast for economic growth in Scotland this year from 1.9 per cent to 1.4 per cent. “The Scottish economy,” warned veteran commentator Brian Ashcroft, “came within a hair’s breadth of recession last year and with very little improvement recently, may fail to avoid a recession in the coming months.”
This came hard on the heels of a warning from the Item Club that growth would slow to just 1.2 per cent this year against a prediction of 1.9 per cent last December.
The malaise is far from confined to the North Sea, reeling from tens of thousands of job losses in the past 18 months. Fraser of Allander says Scotland is now relying solely on the service sector for growth as the contribution of construction, driven by infrastructure spending, has now peaked. “Manufacturing growth can only be described as weak”, and it finds financial services are “especially weak”.
Weaker investment, a reversal of improving employment numbers and continuing low growth in average earnings: the warnings will come as no surprise to readers of this column. Warnings of slowdown were set out here on 27 March, of recession specifically on 10 April and again on 24 April.
After a Holyrood election campaign in which the state of the economy was barely mentioned, ministers are now anxiously reading the runes for signs of a further slowdown that would cut further into Scottish Government finances and add to its debt.
Yet, for all the extra powers now at their command, there are evident limitations on what they effectively can do. And even if they had secured more powers that extended over interest rates and monetary policy, they would find themselves sharing a broader and more troubling malaise.
This is an era in which little has gone right for policy-makers, not just in the UK but also across Europe and America. After the financial crisis, the West’s economies have struggled to regain their buoyancy. Attempts by central banks to stimulate business spending and a modicum of inflation to help a sustained recovery have largely failed. Finance ministers across the West can no longer assume they set the agenda for action on economic issues, or that the declaration of impressive sounding strategies will bring about improvement.
Here in the UK, uncertainty over the EU referendum and the dire warnings from Chancellor George Osborne of a £30 billion austerity budget of tax rises and spending cuts in the event of a Vote Leave victory have scarcely helped morale. Who really believes it?
As if all this was not enough, Bank of England governor Mark Carney has warned that uncertainty over the EU referendum is the “largest immediate risk” global markets face.
Where are signs of resilience? Given the dire prognostications about referendum uncertainty, it is surprising that unemployment in Scotland fell by 11,000 between February and April to stand at 5.8 per cent, with the employment rate at 73.2 per cent. While both numbers trail the UK, the number of people claiming Job Seeker’s Allowance (JSA) fell by 500 between April and May to 57,100 – that’s 19,200 lower than a year ago.
Announcements of business expansion and inward investment have continued while the spell of warm weather gave retailers a lift last month.
The Scottish Retail Consortium bemoans a continuing decline in in-store sales – down by 0.3 per cent. But when adjusted for the effect of online sales, total non-food sales are up by 2.6 per cent – the best performance since August 2014 – and surprising given the fears that consumers would draw in their horns because of referendum uncertainty.
But even with those modest signs of resilience, we cannot but feel at the mercy of forces outwith our control. What is it that the Holyrood administration can do, other than stand by with bandages and Elastoplast?
Arguably the most important response would be a greater show of recognition of the economic challenges we face rather than yet another round of constitutional politics. Businesses sense that the cabinet’s attention is somewhere other than on the real problems at hand. It is not enough that responsibility is left to the economy minister Keith Brown and small business and rural affairs supremo Fergus Ewing. The prospect of recession needs to galvanise attention across the board.
It may be tempting to declare some new “over-arching strategy” or a working group to ponder what such a strategy might contain. The shelves in St Andrew’s House groan under previous high-powered strategies, reviews and agendas.
Better, surely, to run a check on those agencies and bodies already established and ask participants and customers how they can be improved. A spot check on the mechanics of bodies such as Business Gateway, the apprenticeship agencies and Scottish Enterprise would help address practical issues – how delivery problems can be fixed and service improved. Where are the examples of best practice, and how can they be extended?
Positive, practical steps can be taken to help ease the regulatory burden on small business and make advisory services such as that on exports more effective. Local councils could be encouraged to step up high street and town centre refurbishment. And further efforts could be made to speed progress on planning applications.
These are all areas where the administration has already done work. What we need now is a renewed drive on implementation to achieve results. It’s not a grand strategy. But it’s a start.