Scottish economy may follow UK into recession

Group Business Correspondent

Thursday 12 July 2012

THE risk that Scotland could follow the UK into another recession increased in the second quarter when business confidence levels plunged, according to Scottish Chambers of Commerce.

GLOOMY OUTLOOK: The Scottish high street is grappling with problems ranging from eurozone turmoil to the bad weather. Picture: Gordon Terris

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MARK WILLIAMSON

The latest quarterly survey highlights a sharp downturn in sentiment in the last three months as firms grappled with problems ranging from turmoil in the eurozone to the bad weather.

It was released on the day accountancy giant PwC predicted the Scottish economy would shrink slightly this year.

Garry Clark, head of policy and public affairs at Scottish Chambers of Commerce, said: "The optimism evident at the beginning of 2012 is less evident now, and the signs, both internationally and at home, are of a slowdown and return to negative growth. "With few exceptions, demand, and both consumer and business confidence, remain weak and the outlook for the rest of the year is one of little or no growth."Compiled by the Fraser of Allander Institute at Strathclyde University, the survey found that the main trends in all sectors are weaker than a year ago. While the manufacturing sector continues to perform relatively well, concern is mounting among businesses of all kinds about the outlook at home and in key markets overseas.Scottish Chambers of Commerce said the survey findings showed governments on both sides of the border need to act to stop the "tentative and uncertain" recovery in Scotland fizzling out. Mr Clark added: "The Scottish Government has led the way in identifying increased capital spending as an important policy in helping to address economic stagnation and it is now time for the UK Government to act boldly to stimulate demand and to reduce the focus on austerity."The evidence clearly shows the mix of policies of mainly austerity and limited support for growth is holding back any economic recovery. The Government's economic plan needs to move to a new phase focused on growth."Brian Ashcroft, professor of economics at Strathclyde University, has claimed the Coalition's austerity programme is the main culprit for the recovery in the UK economy stalling after mid-2010.Last month, Fraser of Allander Institute reiterated its forecast that the Scottish economy will grow by just 0.4% this year.Economists at PwC forecast Scotland's Gross Domestic Product will fall by 0.2% this year, while GDP in the UK will be unchanged. They did not say Scotland would re-enter recession, which is defined as two successive quarters of falling GDP.The big four accountant said the outlook for Scotland was "cloudy but improving". It expects Scottish GDP to increase by 1.5% next year in line with Fraser of Allander.PwC reckons employment levels will increase over the next 18 months in Scotland, which will be one of the best performing areas of the UK on that measure.Lindsay Gardiner, regional leader for PwC in Scotland said: "While the summer season has its challenges, particularly for those retailers whose sales figures are being impacted as a result of the incessant rain and flooding. Scotland has a great deal of potential to support the UK economy as it continues the long path out of recession.He added: "A hub for oil and gas, financial services and engineering sectors, there are numerous stand-out examples of successful companies that are achieving good growth. A focus by some local companies on export activity and innovation is also helping to drive economic growth."The food and drink sector recently reported record breaking export levels, surpassing the £5 billion barrier for the first time." The latest Purchasing Managers Index survey for Bank of Scotland, published at the weekend, suggested that the Scottish economy accelerated in June after the growth rate slowed to a 17-month low in May.Scottish Chambers of Commerce said the rising trend in manufacturing orders continued in the second quarter but confidence fell compared to a year ago.Confidence in the construction sector was lower than in the second quarter last year, with few new contracts available.The trend in retail sales weakened in the quarter although confidence levels increased "marginally" on last year.Tourism businesses have lost confidence since the same period last year, amid concerns about the weather, the impact of the Olypmics and recent rise in the value of the pound. A majority of respondents in all sectors reported no change to employment levels.

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Scottish economy may follow UK into recession

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