SCOTLAND is facing its toughest year since the 2009 recession and could see growth slow faster than the rest of the UK, according to experts.
“We are seeing the Scottish economy slow, and for the overall Scottish economy as a whole, we’re saying that 2016 is going to be the toughest year since 2009,” said senior RBS economist Sebastian Burnside. “But within that, there are pockets of weakness and pockets of strength.”
Mr Burnside pointed out that the average household in Scotland was £300 richer as a result of the fall in the oil price since mid-2014.
“So if you’re a consumer-facing business outside the North East of Scotland, you’re benefitting from the fact that people have more cash in their pockets to spend,” he said. “If you’re an operator in the North East, it’s going to be tough. If a substantial number of your customers are in the oil and gas sector, it’s going to be really tough too. But we shouldn’t lose sight of the fact that unemployment across Scotland is still falling and still generating job growth, and that’s because of this uneven-ness in the economy.”
Mr Burnside said the oil price fall in the second half of 2014 had taken about six months to hit GDP, so the largely continued falls in the second half of 2015 would continue impacting into this year.
Colin McLean, managing director of Edinburgh-based investment boutique SVM asset management, said Scotland was potentially more exposed to a slowdown through the oil services sector and large players such as Wood Group and Weir Group. Exporters to emerging markets such as China would also find conditions challenging.
“I would have to be concerned that Scotland would slip back into recession because we’ve got more exposure to oil and [export markets],” Mr McLean said. “Scotland is exposed to oil services because we’ve got these bigger oil services companies. And that translates into house prices being affected by the slowdown in Aberdeen. Companies exporting into emerging markets like drinks businesses would also be challenged a bit more.”
James McCann, UK and European economist at Standard Life Investments, said the group’s core view – based on backward-looking economic indicators – was that the UK and global economy remained fairly resilient and would not slip back into recession. However he acknowledged that the risk of recession had increased, based on ‘alarming’ forward-looking financial indicators including credit and equities markets.
“The developments in financial indicators mean for us mean the risks of a global recession have increased,” Mr McCann said. “The markets are definitely pricing in a much higher probability than they were just a few months ago. The other thing we have to monitor closely is that, the longer this financial stress is elevated, the greater the risk it in itself does damage to the real economy. That’s about factors like bank lending standards starting to tighten and firms becoming a bit more nervous about investing.”
Alastair Cumming, senior investment director at Investec in Glasgow, doubted that there would be another financial crisis, as banking regulation had been tightened so much since the last recession.
“The regulators have been all over the banks for five years or so, so banks are far better capitalised than they were before,” he said.
Why are you making commenting on The Herald only available to subscribers?
It should have been a safe space for informed debate, somewhere for readers to discuss issues around the biggest stories of the day, but all too often the below the line comments on most websites have become bogged down by off-topic discussions and abuse.
heraldscotland.com is tackling this problem by allowing only subscribers to comment.
We are doing this to improve the experience for our loyal readers and we believe it will reduce the ability of trolls and troublemakers, who occasionally find their way onto our site, to abuse our journalists and readers. We also hope it will help the comments section fulfil its promise as a part of Scotland's conversation with itself.
We are lucky at The Herald. We are read by an informed, educated readership who can add their knowledge and insights to our stories.
That is invaluable.
We are making the subscriber-only change to support our valued readers, who tell us they don't want the site cluttered up with irrelevant comments, untruths and abuse.
In the past, the journalist’s job was to collect and distribute information to the audience. Technology means that readers can shape a discussion. We look forward to hearing from you on heraldscotland.com
Comments & Moderation
Readers’ comments: You are personally liable for the content of any comments you upload to this website, so please act responsibly. We do not pre-moderate or monitor readers’ comments appearing on our websites, but we do post-moderate in response to complaints we receive or otherwise when a potential problem comes to our attention. You can make a complaint by using the ‘report this post’ link . We may then apply our discretion under the user terms to amend or delete comments.
Post moderation is undertaken full-time 9am-6pm on weekdays, and on a part-time basis outwith those hours.
Read the rules hereComments are closed on this article