Leader: Ominous signs – but push for recovery must not slacken

fter a remarkably positive run that has seen employment in Scotland confound the pessimists and defy the lacklustre performance across the rest of the UK, the tide may now be turning in a darker direction.

Labour market figures are important because they are a more reliable and certain guide to our economic fortunes than the abstract fluctuations of GDP. Official figures show continuing strong employment growth in Scotland over the three months to June. Employment rose by 24,000, pushing the rate up to 71.9 per cent, more than one percentage point higher than the UK overall. And the inactivity rate, already lower than the UK overall, fell again.

So far, so good: the labour market here has shown greater resilience than had been expected after so sharp a downturn in 2008-9 and when the Westminster government’s deficit reduction programme was expected to have cut much more heavily into public sector employment. Scotland has been shielded in part by the bringing forward of capital projects and the administration’s policy of no compulsory redundancies.

The widespread expectation, even as recently as this year, was that the upturn would gather pace and that further progress could be expected on jobs. That expectation has been disappointed. Output data and confidence surveys for both manufacturing and services show a notable slackening in the pace of recovery. Thus the labour market data for the most recent period – the claimant count measure of unemployment for July – showed a rise of 2,600 to nearly 144,700, pushing the rate up a fraction to 5.4 per cent. That is a small rise. But it may be ominously more indicative of what lies ahead for Scotland’s economy.

For in addition to the poor run of output data has been extreme turbulence in financial markets in recent weeks on a combination of sovereign debt concerns and mounting evidence that economic activity in both the United States and Europe is slowing. Earlier this week, Germany, the continental powerhouse, reported a growth slowdown to just 0.1 per cent. The French economy is at a standstill. And in the US, the efforts at Keynesian and monetary stimulus have just not pulled off the growth revival expected. This matters, because these are key markets for our exporters.

The most important market of all is the rest of the UK. The SNP administration makes much of the calculation that the growth in jobs here is equivalent to 96 per cent of the UK total. But the health of the rest of the UK is vital for Scottish business – for this is the destination of much of our output.

Policy attention now needs to focus at the micro level to encourage innovation and to make sure the most effective help is being given to small firms. It is now that we need to ensure that local enterprise companies and Scottish Enterprise assistance are working to maximum effect.