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MacRae: No sign of return to recession

THE Scottish economy is showing the effects of the global slowdown but recent services and construction sector growth, and a year-on-year rise in employment, do not indicate a return to deep recession, a senior expert has declared.

Caution: Economist Donald MacRae warned Scottish businesses are still not investing enough.
Caution: Economist Donald MacRae warned Scottish businesses are still not investing enough.

Donald MacRae, chief economist for Lloyds Banking Group in Scotland, told The Herald he believed gross domestic product (GDP) north of the Border for 2012 as a whole would be broadly unchanged from last year.

He said: "It is difficult to see overall growth in 2012 being anything else other than round about zero."

And he does not expect Scotland to match the 1% quarter-on-quarter rise in gross domestic product achieved UK-wide during the three months to September 30.

This third-quarter rise in UK GDP was aided by activity associated with the London 2012 Olympics, and reflected the fact that output in the three months to June had been depressed by the extra public holiday for the Queen's Diamond Jubilee.

However, he does expect that official GDP figures, due in January, will show Scotland joined the UK as a whole in exiting recession in the third quarter.

Mr MacRae said: "It is going to be interesting to see whether the Q3 UK figure of 1% is replicated in Scotland. I don't think it will be, to that extent.

"I think it will be growth. I don't think it will be anything like 1% in the quarter."

Publishing his latest economic update for Scotland, Mr MacRae acknowledged that GDP figures for Scotland showed three consecutive quarterly drops of increasing magnitude over the period from last October to June, of 0.1%, 0.2% and 0.4%.

He said: "If you look at the chart which is the GDP quarterly [figures], if you just concentrated on those three bars going down the way, you might think that looked rather ominous."

However, Mr MacRae cited growth in construction and services output north of the Border evident in the latest, second-quarter GDP figures published last month by the Scottish Government.

And he noted that, while the purchasing managers' index for the Scottish economy published by Lloyds' Bank of Scotland unit had in September "sadly" fallen below the level of 50 which separates expansion from contraction, it had managed to get just back above this level in October with a reading of 50.7.

Mr MacRae said: "If you put all of that together, that doesn't tell me this trend of increasing falls in GDP is going to carry on. That is why I say [it doesn't] indicate a return to deep recession."

Employment in Scotland on the International Labour Organisation measure in the June to August period stood at 2.49 million, according to figures from the Office for National Statistics, up 16,000 on the same period of last year but down 1000 on the preceding three months.

In his latest economic update, published yesterday, Mr MacRae writes: "The Scottish economy is showing the effects of the global slowdown but recent growth in the services and construction sectors combined with growth in employment over the year to August do not indicate a return to deep recession."

The Scottish Government GDP data show that the Scottish construction sector broke a long run of steep decline with growth of 2% in the three months to June. These figures also show that the Scottish services sector, the major part of the economy, grew by 0.9%, 0.1%, 0.1% and 0.2% respectively in the third and fourth quarters of last year and in the first and second quarters of 2012.

In terms of the outlook for 2013, Mr MacRae said he would agree with the projection of Strathclyde University's Fraser of Allander Institute think-tank that Scotland will achieve growth of about 1.3% next year.

This would be well below an annual trend rate of growth which had been put at around 2% before the deep 2008/09 recession.

Mr MacRae projected the UK as a whole could grow by a bit more than 1.3% next year. He said: "It wouldn't surprise me if we were slightly below the UK in terms of growth next year."

Fraser of Allander forecasts the Scottish economy will contract by 0.1% over 2012 as a whole.

Mr MacRae cited quarterly Scottish Government figures as evidence that retail sales volumes were growing north of the Border.

However, he noted that business investment in Scotland had failed so far to recover to levels seen in 2007 and 2008.

Describing this as a concern, Mr MacRae added: "Businesses aren't investing enough."

Contextual targeting label: 
Finance

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