Austerity 'main culprit' for renewed recession

Group Business Correspondent

Thursday 21 June 2012

THE Coalition Government's austerity programme has been blamed for the sharp slowdown in growth in Scotland since 2010 by a leading specialist on the economy.

MEXICO SUMMIT: Chancellor George Osborne said the UK was seen by G20 as part of the solution to the world's problems. Picture: Getty Images

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MARK WILLIAMSON

The Fraser of Allander Institute at Strathclyde University repeated claims the Government's strategy is causing big problems in Scotland where consumers and businesses have been tightening their belts amid big cuts in public spending.

"It is now clear that the recovery in output stalled after mid-2010," said the Institute.

"We are strongly of the belief that the UK government fiscal austerity programme is the main culprit."In the latest of its regular reports on the economy, sponsored by PwC, Fraser of Allander reiterates its forecast that the Scottish economy will grow by just 0.4% this year. It believes unemployment will increase to more than 250,000 by the end of next year, leaving about one in 10 people who are available for work (9.5%) jobless.But with the Scottish economy facing turbulence in the form of the problems in the eurozone and high levels of inflation, the institute believes growth could peter out entirely this year.Brian Ashcroft, Professor of Economics at the University of Strathclyde, put the onus on the Westminster Government to prevent Scotland following the United Kingdom into a double dip recession.He believes ministers could provide a vital boost to demand through a massive investment programme, accompanied by tax and benefit changes to give money to people who would spend it. I would argue for a major infrastructure programme in the UK, £50 billion to £100bn, with possibly some alleviation for the unemployed, some tax cut would help," said Professor Ashcroft.He rejected Chancellor George Osborne's claims that the deficit reduction programme has produced big benefits for the UK by boosting its credibility with bond market investors, reducing the cost of borrowing in the process.Mr Ashcroft argues the recent fall in rates on 10-year bonds to historic lows is due to the fact that risk-averse investors are shifting money from the eurozone. They like the fact the UK has control over its currency. However, he added, the low cost of capital made investment in infrastructure very affordable.Fraser of Allander warns a break up of the eurozone could result in Scotland's output shrinking by 5.3%, with the loss of 144,000 jobs. If Greece leaves the Eurozone, Scotland's GDP would fall by 1.2%, pushing the country into recession with the loss of about 50,000 jobs.Morven Campbell, risk assurance partner at PwC, said: "Scottish businesses must understand and prepare for all the potential eurozone scenarios." With the key financial services sector struggling, Fraser of Allander forecasts Scotland will enjoy only sluggish growth on current trends.It has cut its forecasts for GDP growth in 2013 and 2014 to 1.5% and 2.5% respectively, from 1.7% and 2.6% in February.The institute reckons Scottish GDP must grow 2% annually for unemployment to stabilise. It predicts unemployment on the ILO measure will rise to 246,100 this year, 252,400 in 2013, falling to 238,200 in 2014.In February the institute warned the job prospects of a generation of young people were under threat.A Scottish Government spokesman said: "The Scottish Government has repeatedly called on the UK Government to support recovery by investing in increased capital spending. We have made the case for an alternative approach since the Emergency UK Budget in June 2010, which set out cuts that were too far and too fast." Attending this week's G20 summit in Mexico, Mr Osborne said the UK was seen in the grouping as part of the solution to the world's problems.

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Austerity 'main culprit' for renewed recession

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