• Text size      
  • Send this article to a friend
  • Print this article

Cautious optimism for the economy

The fact that an important forecast of economic growth in Scotland this year has been nudged up from 0.7% to 0.8% will make no immediate difference to anyone who has lost their job or is struggling to pay their bills: marginal growth, or marginal shrinkage, in economic forecasts is of little consequence to real people dealing with real problems.

However, the prediction from Ernst & Young that Scottish Gross Value Added or GVA, which measures the value of goods and services produced, will grow by 0.8% this year rather than the 0.7% they were predicting last December is another small sign that it may be time to move from pessimism to cautious optimism on Scotland's economy. Combined with the survey by the accountants KPMG which suggests that three in four companies are now confident of increasing profit and turnover this year, it helps build an overall picture that is looking a little brighter.

There are some important caveats. The most important of them is that the independence referendum is creating considerable uncertainty in the business of predicting how Scotland's economy will do in the coming years. It may be that inward investors will hold off; it may be that they will be attracted to a new, emerging market. The point is we do not know and that injects uncertainty into an area where as much certainty as possible is required.

The wider economic picture is also important. First, any prediction of growth and greater confidence is heavily dependent on the continued containment of the eurozone crisis. Secondly, Scottish recovery will only continue if the global economy strengthens considerably and the signs of that are still shaky: the US is struggling to get much above 2% growth and even China has lost some of its forward momentum.

All of those caveats accepted, the chink of hope offered by Ernst & Young's forecast is welcome, although it is going to be a long time before Scotland achieves the levels of output and growth seen before the financial crisis. What is helping is that business confidence appears to be slowly returning and so too is some consumer confidence. Real disposable income has increased modestly, and consumers are continuing to pay down their debts, which should mean those consumers returning more and more to spend money on the high street.

There has been no change to the fact that Scotland still lags behind the UK for all the traditional reasons. The sectors that are doing best – retail, transport, storage and communication and professional and administrative services – make up less of Scotland's economy than the UK's, and the sectors doing worst – mining, construction and accommodation and food services – make up much more. Essentially, much of our unemployment is in sectors which are taking longer to recover and are taking much of the hit. The signs of progress in the construction sector in particular are discouraging and it will be well into the next decade before we are back where we were in 2008.

None of that means we should necessarily pine for the kind of growth Scotland was experiencing six or seven years ago, much of which we now know was unsustainable. What is needed instead is slow, solid, lasting growth, based as much as possible on manufacturing, which is still lacklustre. A range of factors, including European and global economic stability, household incomes and better access to finance, may point to the possibility of a better 2014 than 2013 but, until manufacturing output is transformed and business confidence begins to build consistently, the uplands of sustained economic recovery will remain a long way off.

Contextual targeting label: 
Finance

Commenting & Moderation

We moderate all comments on HeraldScotland on either a pre-moderated or post-moderated basis.
If you're a relatively new user then your comments will be reviewed before publication and if we know you well and trust you then your comments will be subject to moderation only if other users or the moderators believe you've broken the rules

Moderation is undertaken full-time 9am-6pm on weekdays, and on a part-time basis outwith those hours. Please be patient if your posts are not approved instantly.

165904