Fraser of Allander Institute slashes its 2012 UK growth forecast from 0.9% to 0.4%
Scotland's economy is likely to grow at a slower pace than the rest of the UK this year a new report suggests.
The Fraser of Allander Institute's report, compiled in conjunction with PwC, has more than halved its 2012 UK growth forecast – from 0.9 per cent to just 0.4 per cent.
The UK economy contracted by 0.2 per cent in the final quarter of 2011, the report states, and the institute has revised its UK GDP forecast for 2012 down from 0.9 per cent growth to just 0.4 per cent.
And the institute warns Scotland's growth will “continue to be weaker than the UK” but added “growth in the two jurisdictions is now expected to be much closer together”. Brian Ashcroft, Professor of Economics at the University of Strathclyde, said: “Growth in the Scottish economy continues to slow down, employment is falling and unemployment is rising at a faster rate than in the UK.
“Yet, with falling inflation there are some signs of a recovery emerging in the second half of this year and the hope that the problems of the Eurozone, if not solved, are less likely to plunge the world economy into recession than when we last reported.
“The UK economy contracted by 0.2 per cent in the final quarter of last year and all the indications from the recovery so far is that Scottish growth will have been similar.
“Scottish GDP, after falling by six per cent through the recession, is still 3.3 per cent below the pre-recession peak nearly four years ago, while the figure for UK GDP is -3.6 per cent.
“A return to pre-recession output is unlikely before the third quarter of 2014.
“This will be six years after the start of the recession and could coincide with the launch of the Commonwealth Games in Glasgow.”
Its latest survey found unemployment is continuing to rise in Scotland while employment is still falling.
Scotland's labour market, according to the report, is weaker than the rest of the UK at 3.9 per cent below the pre-recession employment peak, while employment has fallen to -4.8 per cent.
This compares with UK employment figures of -1.38 per cent.
The report states: “Moreover, the situation in the Scottish labour market is worse than that implied by the employment figures.
“This is because the supply of labour is rising as working population increases.
“An examination of the amount of jobs on offer compared to the available labour supply reveals that the situation is now identical to the trough of the recession.
“Hence unemployment has been rising strongly recently to 231,247 or 8.6 per cent and above the UK rate of 8.4 per cent.”
Scotland's economy is still 3.3 per cent below its pre-recession peak nearly four years ago compared to -3.6 per cent for the UK as a whole.
The Fraser of Allander report also states the depth of the recession in Scotland has been less severe than for the rest of the UK at – 5.9 per cent compared with -7.2 per cent for the rest of the UK.
However, the National Institute in London notes the time it is taking to return to pre-recession economic growth peaks is now greater than in the Great Depression of the 1930s.
The Fraser of Allander Institute predicts Scottish GDP will not recover to its pre-recession peak until the third quarter of 2014 when the Commonwealth Games will be held – six years after the recession began.
Its report points to the eurozone being the “elephant in the room” with many European banks still reliant upon European Central Bank bailouts in its role as lender of last resort.
Paul Brewer, senior partner at PwC in Edinburgh, said: “As we continue to bump along the bottom, businesses and households are continuing to adjust their expectations to account for this extended journey to growth.
“When a business is looking to expand, availability of finance can make the difference between success and failure and it is concerning that for private companies and smaller corporates, credit remains tight.
“On the flip side however, banks are also seeing less demand for finance to drive growth. Recent research revealing a significantly reduced appetite for risk-taking by Scottish firms during the recession may provide one explanation for this.
“With Government relying on an export-led recovery from recession, news that Scotland’s biggest customers are found within the UK as well as seven out of ten countries in the Eurozone may make this seem like a challenge too far. However, there is a glimmer of light.
“With an Export for Growth event in March set to help firms achieve their export dreams, our research shows a renewed focus by over half of Scottish private businesses on growing markets in the emerging BRIC economies (Brazil, Russia, India and China) with a further 11 per cent
eyeing up opportunities in Latin America and Mexico.
“Further emphasis on this could go some way to not only pulling the country out of its economic stagnation but in both retaining and creating jobs in the longer term.”