Leader: Economic gloom must not blind us to positive potential

The Scottish Chamber of Commerce warns in its latest quarterly survey that the fragile recovery seen in the first half of last year fell away in the final six months and that output in Scotland could have turned negative in the final quarter – a trend that looks to have continued into the first three months of this year. Two consecutive quarters of negative growth would mean that the country would be officially back in recession. Certainly few would dispute the SCC’s assessment: “For many Scottish businesses the combination of limited improvements in turnover, rising costs, pressures on margins and declining trends in profitability pose real problems… Our concerns for 2012 are greater and threat of recession more apparent.”

Separately the Scottish Retail Consortium reported the worst December trading in at least 12 years. Sales on a like-for-like basis edged up by just 0.4 per cent. Even food sales struggled as shoppers looked to discounted and promotional products. The overall rise was the worst since the SRC began to collect retail data in 1999.

Recession may no longer be “looming” in Scotland, but already here. Earlier this week the ITEM Club warned that global uncertainty has put the overall UK economy on hold. It believes the UK is now in a “technical” recession, and even if the eurozone crisis is resolved promptly, it does not foresee a recovery getting under way until the autumn, and even then unemployment will be heading towards a peak of three million expected next year. Support for this view is expected to come with unemployment figures today.

Grim though all this is, there are key points that should pull us back from a wholly negative outlook. First, inflation is on the wane. The Consumer Price Index has fallen from a 4.8 per cent rate of increase in November to 4.2 per cent last month, the sharpest contraction in more than three years. The Bank of England predicts that the rate will continue to decline steeply over the year and will fall below the 2 per cent target by the end of 2012. This should help bring relief to hard-pressed households.

Second, while return to recession is clearly a setback, neither the pace of decline nor the forward-looking indicators suggest the severity of deterioration experienced in early 2009. This looks set to be a short and shallow recession even though there is little prospect of a dramatic bounce. Tough though it is for high street retailers, internet sales are continuing to expand.

Bank balance sheet repair is continuing. And for manufacturing, there is some positive news. The Scottish government yesterday announced four enterprise areas to target the sectors with the greatest potential for growth and new jobs. Given all the challenges ahead it is vital that the economy should be accorded number one priority by the Scottish government and by parliament in the period ahead.