Institute warns on growth and rising unemployment

Group Business Correspondent

Thursday 1 March 2012

OUTPUT in Scotland will not recover to the levels it reached before the recession for another two-and-a-half years, an influential economics specialist has predicted.

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MARK WILLIAMSON

The Fraser of Allander Institute at the University of Strathclyde believes Scotland will endure an extended period of anaemic growth as weak consumer spending and the Coalition Government's austerity drive weigh on activity.

In the latest edition of its closely watched Economic Commentary, supported by PwC, the institute notes that the recovery of key sectors like services and construction is being hampered by weak demand.

The institute has slashed its central forecast for growth in Gross Domestic Product in Scotland this year to 0.4%, with one or two quarters of negative growth possible. That compares with a forecast of 0.9% made in November.It estimates the Scottish economy grew by 0.7% in 2011.Fraser of Allander warns the sluggish growth rate is likely to result in unemployment rising rapidly north of the Border. It predicts unemployment on the International Labour Organisation measure will increase from 231,247 in the quarter to December to 265,250 at the end of the year, before falling to 253,950 in 2013. This would mean the unemployment rate rising from 8.6% in the last quarter of 2011 to 9.8% in 2012 before easing to 9.3% in late 2013. "Growth in the Scottish economy continues to slow, employment is falling and unemployment is rising at a faster rate than in the UK," said Brian Ashcroft, professor of Economics at the University of Strathclyde. He warned the current high levels of youth unemployment could cause social and economic problems.Claiming that the Coalition Government's austerity policy is stifling demand, Professor Ashcroft said the Chancellor should increase the benefits paid to unemployed people to boost consumer spending and should reduce the employers' national insurance rate in the forthcoming Budget.Professor Ashcroft welcomed signs that conditions might improve later this year, when the inflation rate is expected to fall. He said the institute hopes the problems of the eurozone, if not solved, are less likely to plunge the world economy into recession than when it reported in November. However, the institute cautioned: "The prospects for Scottish exports remain very uncertain."Ministers have been hoping growth in exports will help rebalance the economy to make it less reliant on services. The expected fall in inflation is unlikely to provide the boost to domestic demand needed to speed the recovery of firms in key sectors like services and construction.The institute increased its forecast for growth in GDP next year slightly, to 1.7% from 1.6%.However, Fraser of Allander does not expect much improvement in growth until 2014, when it expects GDP to increase by 2.6% annually. "A return to pre-recession output is unlikely before the third quarter of 2014, six years after the start of the recession," predicted the institute. After falling by 6% through the downturn, Scottish GDP is still 3.3% below the pre-recession peak reached nearly four years ago.

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Institute warns on growth and rising unemployment

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