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Growth forecast gloom for Scottish economy

THE Fraser of Allander Institute has cut its Scottish growth and employment forecasts for this year, 2013 and 2014, and highlighted the impact of the UK Government's fiscal austerity.

The Strathclyde University think-tank highlighted a potential "silver lining" in terms of Scotland's competitiveness, noting productivity by hours worked had improved in Scotland but deteriorated in the UK as a whole.

However, Brian Ashcroft, economics editor of Fraser of Allander's regular economic commentary, warned that, without a strong upturn in demand, the effect on growth of improved productivity was like "pushing on a string".

Fraser of Allander projects slightly stronger growth in Scotland than in the UK as a whole in 2013 and 2014, and a lesser contraction north of the Border in 2012. But it warns Scottish unemployment is "giving rise to increasing concern, both in itself and in comparison to the UK".

The Scottish Government yesterday published figures showing the number of private sector enterprises in Scotland stood at 341,360 at March 31 – the highest figure since comparable records began in 2000 and up 9.9% on a year earlier. However, amid tough labour market conditions, this rise was driven by one-person businesses too small to be registered for value-added tax.

Meanwhile, a survey published today by banking group Barclays shows Scotland's entrepreneurs suffering from a fear of failure, with 50% saying they have put off making important business decisions in the last 12 months in case they make the wrong call.

Fraser of Allander projected yesterday, in its latest commentary, that the Scottish economy would contract by 0.1% this year. It had, in June, projected 0.4% growth. The median expectation, among independent forecasters, is that UK gross domestic product (GDP) will fall 0.3% this year.

The think-tank, which cited the impact of eurozone troubles on Scottish exports as well as the effect of UK fiscal consolidation and weaker global demand for goods and services, cut its projection of growth in Scotland in 2013 from 1.6% to 1.3%, and its forecast of 2014 expansion from 2.5% to 2.2%.

However, Fraser of Allander's revised expectations of Scottish growth in 2013 and 2014 are higher than respective projections of 1.1% and 1.9% for expansion in the UK as a whole, based on the median of independent forecasters.

Mr Ashcroft, emeritus professor of economics at Strathclyde University, said: "With GDP falling in the first half of the year, it is likely that Scotland will suffer a fall in GDP in 2012. In a month when the IMF [International Monetary Fund] published research indicating fiscal austerity has had a much greater effect on output than anticipated, we must look forward to further fiscal retrenchment even though both private domestic and foreign demand continues to be weak."

The European Commission yesterday warned the UK Government may miss its key target of reducing national debt as a percentage of GDP by 2015/16 unless Chancellor George Osborne introduced further austerity measures in his December 5 autumn statement. The Commission forecast UK GDP would fall 0.3% this year, and grow by only 0.9% in 2013.

Fraser of Allander now forecasts that a net 25,750 jobs will be lost in Scotland this year, with 22,750 being shed in the services sector and 2550 going in construction. In June, it had projected 14,950 net job losses in Scotland this year. It predicts net job creation in Scotland of 16,950 in 2013, down from its June projection of 19,950. And Fraser of Allander has cut its forecast of net job creation in Scotland in 2014 to 29,450, from 36,050 in its June projections.

It expects unemployment on the International Labour Organisation measure, which in the June to August period was 7000 higher than in the preceding three months at 222,000, to end this year at more than 225,000, a rate of 8.5%, before climbing to 234,603 or 8.8% by the close of 2013, then falling to 228,740 or 8.7% by the close of 2014.

Fraser of Allander notes Scottish employment is around 2% below its pre-2008/09 recession peak. It says, in the UK as a whole, employment is almost back to the previous peak and is currently only 0.2 % below.

At June 30, after three consecutive quarters of contraction, Scottish GDP was 4.4% off its 2008 peak, while UK output was 3.8% adrift, even though the 2008/09 recession was slightly shallower in Scotland.

Mr Ashcroft believes Scotland will have achieved an increase in GDP in the third quarter, but expects this rebound will be much weaker than the 1% rise in the UK as a whole.

Paul Brewer, senior partner at accountancy firm and Fraser of Allander commentary sponsor PricewaterhouseCoopers, saw a "glimmer of light" in the recent fall in Scottish corporate insolvencies.

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