Scotland on course for perfect 'double dip' storm

Latest figures from the Scottish Government show the economy recorded no growth between January and March after gross domestic product (GDP) rose by 0.3 per cent in the final three months of last year.

Scotland had only emerged from recession in the last three months of 2009, after more than a year in downturn.

Across the UK, the economy grew by 0.3 per cent in the first three months of this year.

Scotland's GDP also plummeted by 3.5 per cent over the year to the end of March 2010 - while the UK overall shrank by 3.3 per - cent despite staying at the same level during the last three months of 2009.

The news has sparked fears that the Scottish economy could slump back into recession, with key parts of the private sector failing to grow and the public sector facing deep cuts next year.

John McLaren, an economist with the Centre for Public Policy of Regions at the University of Glasgow, said that the GDP figures for Scotland were not "particularly promising" and that the economy's slow growth rate meant there could still be a double dip recession.

He said: "The figures are disappointing in comparison to the UK's, with business and financial services continuing to fail in Scotland.

"Given what we're going to see happening to government services the outlook is not particularly promising.

"It's worrying that Scotland is not doing even as well as the UK economy, which is not exactly bounding away.

Mr McLaren warned that there might not be a increase in private sector investment or consumer spending.

He said: "There is still a risk of a double dip because of the public sector decline we're likely to see during 2011-12, but we don't know if there will be an offsetting effect in increased investment or consumption."

Iain McMillan, the director of CBI Scotland, also warned there was a risk of a slide back into recession because the public sector dominates too much of the country's economy and private industry was not big enough to drive a strong recovery.

He said the size of the public sector in Scotland meant that the package of cuts set to hit services would have a bigger impact north of the Border than across the UK as a whole.

"There is a possibility of a double dip in Scotland as the private sector occupies less of the economy, compared to the public sector which is too big," he said.

"The tight public-sector spending regime that we will see will make the Scottish economy weaker and as the public sector is bigger in Scotland there will be a greater impact here than in the rest of the UK.

"Public-spending sector restraint will have the affect of rebalancing the Scottish economy and it's not before time.

"No-one wants to see public service damaged, but that spending has got to come down."

Mr McMillan went on to call on the Scottish and UK governments to take action to control public spending and to do more to support businesses.

Scotland's Finance Minister, John Swinney, admitted that the country's economic recovery was "lagging" behind the rest of the UK, but partly blamed the harsh weather at the start of the year for the slow growth rate.

He said: "Clearly Scotland's different economic cycle and stronger past performance means that there is a lagging effect in terms of recovery - and the severe winter weather will undoubtedly have impacted on key parts of the economy at the beginning of the year.

"Building a strong and sustained recovery is our priority - and the fragility of the situation confirms that the UK government is risking recovery by cutting too quickly too deeply, and that the Scottish Government was correct to defer further Westminster cuts to next year in order to support economic activity and employment now."

Meanwhile, the figures showed that the Scottish service sector fell by 2.4 per cent in the year to March.

The production sector dropped by 7.1 per cent and the construction sector fell 8.3 per cent.

During the first quarter of 2010, the service sector fell by 0.2 per cent, the production sector remained unchanged while construction grew by 2.8 per cent.

The GDP growth of 0.3 per cent in the final three months of last year has been revised up from 0.2 per cent.

Liz Cameron, chief executive of Scottish Chambers of Commerce, said the figures represented mixed news for the country's economy.

She said: "The news that Scotland's GDP has fallen by 3.5 per cent over the past year to the end of 2010 Q1 confirms recovery remains fragile. It is somewhat good news that GDP overall has remained constant between the fourth quarter of 2009 and the first quarter of 2010, although this reaffirms we cannot take our eye off the ball.

"As the recent Scottish Chambers of Commerce Quarterly Business Survey has shown, some sectors of our economy are expecting tougher trading conditions over the summer.

"Next year, we will also have to contend with the rise in VAT and public spending cuts both at a Scottish and UK level.

"It is vital in an era of relatively low public spending that every pound we pay to the government in tax is invested in creating the right environment to allow the private sector to drive our economy forward.

"This is particularly true in Scotland where our economy has for too long been over-reliant on the public sector for growth."

The Scottish Building Federation said that the figures showed positive signs for the construction industry.

Chief executive of the body Michael Levack said: "If these first tentative signs are to have any chance of translating into a sustainable recovery, public capital investment budgets will need to be protected and more will need to be done to inject life back into private-sector housebuilding and commercial and industrial construction work."

But opposition parties at Holyrood blamed the economic policy of the SNP for Scotland's GDP rate growing at a slower rate than the rest of the UK.

Labour finance spokesman Andy Kerr said the figures showed Scotland's economy is "stagnant" under the SNP.

He said: "This is a clear indication that the SNP government's top priority of 'building a strong and sustained recovery' is running into the sand. They have made poor choices on the economy and that is why we have seen production and construction fall considerably - clear indicators of the Salmond slump."

Tory finance spokesman Derek Brownlee said the figures show that recovery in Scotland is more fragile than the rest of the UK. He said: "Scotland has relied too heavily on public-sector employment in the past, and recovery will be put at risk if the Scottish Government makes the mistake of focusing only on public spending in the years ahead.

"Demanding more and more public spending is not an economic policy, it is a desperate political tactic."

Lib Dem finance spokesman Jeremy Purvis added: "These sobering GDP figures are met yet again with more complacency from SNP ministers.

"The fact is there is now a chasm between SNP rhetoric and the lack of any meaningful economic policy from their Government.

"This has the real potential of setting the Scottish economy back considerably."

Government - Hard times ahead as '30,000 jobs to go'

Within the areas of public administration, education and health there was an increase of 0.8 per cent.

The news comes after it emerged that one-in-four Scottish jobs is currently in the public sector.

However, the number of people employed in the sector is set to be hit by job losses during the next year as public expenditure cuts hit frontline services.

Local councils, health boards and civil services posts are also expected to be affected by the austerity measures.

The Ernst and Young Scottish Item Club group of economists has previously talked about how the Scottish Government will have no choice but to wield an axe over tens of thousands of posts as it faces up to some of the toughest spending.

A report from the group suggested a figure of about 30,000 jobs representing about five per cent of the public sector workforce, would be lost.

Construction - Battered sector starts to turn the corner

Construction showed a quarter-on-quarter gain of 2.8 per cent compared to the previous period.

The news comes after a long period of downturn in the industry, that saw job losses and public building projects cancelled.

Production - Mining bucks trend of unchanged output

The figures showed that overall output in the production sector during the first three months of 2010 remained unchanged compared to the fourth quarter of the previous year of 2009.

However, there were mixed results in different parts of the sector, with some increases in output.

Other areas saw their output levels drop during the same period.

Within production there was growth in the mining and quarrying industries of three per cent.

There was also an increase in the electricity, gas and water supply sectors, where growth went up by a total of 0.7 per cent.

However, the manufacturing sector or production experienced a fall in output of 0.3 per cent during the same period. Meanwhile, the figures showed that there was growth in food, drink and tobacco of 1.5 per cent.

In the chemicals and man-made fibres sectors there was an increase of 2.7 per cent.

Figures for the area listed as other manufacturing showed a total rise of 0.7 per cent.

In the textiles, footwear, leather and clothing industries the output went up by 4.7 per cent.

Metals and metal products went up by 0.5 per cent during the same period.

But there was falling output in refined petroleum and nuclear fuel with a drop of 0.4 per cent) and engineering and allied industries where output went down by 3.5 per cent.

Services - Mixed bag of rise and fall in hard-hit sector

During the first quarter of 2010 the output of Scotland's service sector dropped by 0.2 per cent compared to the previous three months.

There was an increase in the financial services part of the sector of 2.5 per cent during the period covered by the statistics.

The news comes after a period, which has seen massive job losses in the sector following the collapse of major banks such as Lloyds in 2008.

However, there was a mixed picture in parts of the sector, with increases alongside some declining rates.

There was a total fall in output for services listed as "others" of 0.1 per cent, according to the statistics.

Transport, storage and communication services went down by 0.2 per cent, while hotels and catering fell by 0.5 per cent.

Retail and wholesale went down by a total of 1.0 per cent.

Real estate and business services saw fall of 1.9 per cent) during the same period.

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