Analysis: ‘The big picture on the economy is we are stagnating, and it could be messy’

What the evidence shows is that the Scottish economy– and also the British economy – is slowing down.That is in part to do with the eurozone, but it is also because of the real dip in personal disposable income, which is itself in part due to the weak growth of wages and the strong growth of prices.

Investment is exceptionally weak and we have less public spending growth than we had. Households have a significant amount of debt and are trying to pay that down, so are saving – and not spending – more than they were before 2008.

The inflation figures are good news in one sense, because prices will hopefully be lower, but it is a key measure of the global economy and is probably another indicator that the economy is weakening.

Are we going to go into recession? It depends what we mean by that. If we mean technical recession – that is, two quarters of negative growth, then that is very possible. It is highly likely that the UK will show negative growth in the fourth quarter of 2011 and it is possible that Scotland will as well. Scotland is broadly mirroring the UK, but is weaker in its recovery.

What we may see, however, is not a consistent pattern. We’re more likely to have a quarter of growth or two, then a pick-up – then another fall.

It wouldn’t necessarily be what we saw before, with a big drop followed by a slow recovery – it could be messy. I think it will be some time before we see a proper recovery with consecutive periods of growth. What has held it all back is still the problem of 2008, because we’ve a massive credit crunch due to a speculative bubble caused by borrowing. That is slowly unwinding but it will take a long time.

The flagging retail sector is more symptomatic of a struggling economy. As well as people having less money to spend, there is also a shift towards shopping online which may mean Scotland could miss out. Finally, what is happening in the eurozone is totally bleak. Greece is going to default, there is no question about that – it just depends how it happens. That will plunge Europe into a further low level of output.

Looking forward, the big economic issue – without any major events happening – is that we are stagnating. • Professor Ashcroft is emeritus professor of economics at the University of Strathclyde.