Scotland economy stymied by ‘anaemic recovery’

A group of leading economists has warned Scots to expect "anaemic growth" in years to come. Picture: PA

• Leading economists warn against expectations of speedy return to growth for Scotland

• Growtih projected only at 2 per cent in 2015 in Scotland

In its latest assessment of Scotland’s long road back from the depths of the 2008 financial crash, the Fraser of Allander Institute uprated its figures in the medium-term, saying growth would squeeze above 2 per cent in 2015.

But given Scotland’s flatlining export sector and the prospect of £70 billion more public sector cutbacks to come, it said that the nation should forget prospects of a boom on the horizon.

As with previous reports, the institute, based at Strathclyde University, stuck by its policy recommendation that, in order to give the economy a kick-start, UK ministers should inject fresh spending on infrastructure projects now while borrowing costs are low.

The quarterly report’s prognosis for the economy comes a week after other economic groups warned last week that Britain will still be facing austerity in 2020, as the slow recovery from the debt boom unravels.

Professor Brian Ashcroft, emeritus professor of economics at Strathclyde University, who co-wrote the report, said: “There is a clear sense of a recovery emerging within the Scottish economy.

“But you have to say that one has to be cautious about this recovery blossoming into a massive boom in terms of the economy as a whole.”

The report concluded that growth in Scotland this year will be just 0.9 per cent. It will then rise to 1.6 per cent in 2014 – down a fraction on previous estimates. Then in 2015, growth will rise to 2.1 per cent – a slight increase on previous estimates.

However, while those figures show a slow upward trajectory in growth, the institute still believes that there will be a fresh rise in unemployment before it falls back to pre-recession levels.

It projects a rate of 7.9 per cent for this year, rising to 8.4 per cent next year, and then down to 7 per cent in 2014.

It will not be until 2015, it believes, before unemployment begins to fall back to the levels seen prior to the financial crash, when unemployment levels in Scotland were below 4 per cent.

The changing face of the Scottish economy is also revealed in the report. It concludes that the state of the country’s once-booming financial services sector is now a source of growing concern, and has lost a sixth of its total output compared to before the recession.

The report finds that the sector hauling Scotland into growth is the strongly performing “business services” sector – which includes everything from real estate sales, to legal services, accountancy and architecture. It is now well above levels seen before the recession. The country was increasingly reliant on this sector for growth, the report said, with manufacturing exports still “incredibly weak”.

The report concludes: “Despite the recent good survey evidence, the recovery is far weaker than would be expected five years after a recession, even a recession generated by a banking crisis.

“The reason for this stagnation and anaemic recovery is twofold: the UK government’s fiscal consolidation programme and a weak export performance reflecting both supply-side structural problems in the UK and Scottish economies, as well as weak global demand.”

Paul Brewer, a senior partner at PwC – which sponsors the report – said that the slow rate of growth was also being helped by investment within the economy.

He added: “The pace of investment in energy assets, such as renewable generation and grid development, has picked up. Scottish Government-sponsored projects such as the new Forth road bridge crossing, Edinburgh trams and the affordable housing programme are also delivering an economic boost during their construction phase.”

On the outlook for public spending, the report concludes that some £70bn of cutbacks will have to be taken out of the economy over the coming years, with welfare likely to be in the firing line. It adds that “we see no reason to change” the view that a major infrastructure investment programme should be rolled out now to boost that rate of growth.

The UK government has unveiled some new cash for infrastructure, but insists it cannot risk borrowing more on capital spending. Chancellor George Osborne is to unveil a new Spending Review later this month for the years beyond the next general election in 2015, with further departmental cutbacks already having been agreed.

Case study: ‘I was unemployed for six weeks and it was hard’

Bryan McNally found himself among the thousands of young Scots out of work when he was paid off as a window fitter towards the end of last year.

But despite a bleak outlook, he found a lifeline through a job centre course which lasted four weeks and gave him the opportunity to get back into employment.

The 22-year-old now works full-time as a fabricator with Irvine-based Miller Callaghan, after getting the job seven months ago, and has been involved in maintenance to crash barriers for the Kessock Bridge.

“I had been unemployed for about six weeks and it was hard,” he said.

“As soon as I got told I was being laid off I started looking, but couldn’t find anything I was looking for.”

He added: “The main reason I got this job was because I was on a four-week course.

“After I was made unemployed I signed on at the job centre and they set me up with the course, doing things that included team-building exercises.

“They then set me up with a job interview and I started work the following week.”

Mr McNally, who is engaged and lives in Irvine, has been involved in maintenance work on the Kessock Bridge since February, gouging off plates from the old crash barriers and fitting plates for the new crash barriers.

He added: “We’ve got about two weeks left, then the next phase, for the other side of the bridge, gets under way next February.”

He discussed his new job with First Minister Alex Salmond who visited the firm yesterday.

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