THE fall in crude prices will boost growth in Scotland's economy overall this year although it could take a devastating toll on the oil and gas industry, economists have predicted.

 

Strathclyde University's Fraser of Allander Institute reckons the benefits Scotland enjoys as a result of the sharp fall in oil prices, such as lower petrol prices, will outweigh the effects of the damage caused in the North Sea.

Brian Ashcroft, Emeritus Professor of Economics, University of Strathclyde, said the oil price fall will encourage consumers to increase spending and businesses to raise investment, fuelling the recovery just as growth slows in many major economies.

The institute believes the fall in the oil price could boost Scotland's growth rate by as much as 0.25 percentage points this year. This would be a significant increase given that the trend rate of growth in Scotland is around 2%.

In its latest Economic Commentary sponsored by PwC, the institute has increased its forecast for the growth rate in Scotland this year to 2.6 per cent, from 2.2 per cent in November. The increase partly reflects the improvement in the economy since then. The forecast for 2016 has been raised to 2.4 per cent, from 2.1 per cent in November.

Mr Ashcroft noted that limitations on the information available and uncertainty about future trends meant the institute could only offer a crude estimate of the impact on the economy of the fall in oil prices.

But, he, added the institute calculates an additional 9,700 jobs could be created in Scotland this year, net of those lost, as a result of the oil price fall.

It reckons only 600 jobs would be lost, net of those created, on a worst case scenario.

Mr Ashcroft, added: "We must not forget the oil and gas industry, which is a major asset to the Scottish economy."

The institute said the oil price fall will weigh heavily on the Aberdeen area, where oil and gas firms are shedding hundreds of jobs.

David Glen, head of tax in Scotland at PwC, highlighted the danger companies could decide fields in the North Sea are uneconomic resulting in them being decommissioned early.

He said George Osborne should use The Budget on 18 March to cut taxes to boost activity and help prevent what could be an irreversible decline in the oil and gas industry.

The institute also noted a range of possible threats to prosperity in Scotland.

It reckons growth in Scotland and the UK is too reliant on consumer spending fuelled by debt, which may be rising to unsustainable levels.

Mr Ashcroft renewed his criticisms of the austerity policies followed by the Coalition Government, which he said are set to take another £92 billion out of the UK economy over the next five years.

He reiterated his call for Scotland to be given significantly greater powers over borrowing so it could raise funds to invest in things that would boost growth, such as improved transport infrastructure.

Mr Ashcroft said he thought there was a lot in the proposals made by the Smith Commission on devolution. But' he added: "However commendable the outcome has been given the short time they had and the fact they got agreement amongst the parties, this is not the right way to go forward with a constitutional settlement in two months."

With the institute warning a Greek exit from the Eurozone could have significant consequences for the Scottish economy, Mr Ashcroft voiced concern about the implications of the UK voting to leave the EU.

He said: "I think it would be significantly damaging both to the UK and Scotland." Exit from the EU could cause big problems on the trade front and lead to huge uncertainty among businesses.

Research for the commentary suggests the corporate sector in Scotland is in pretty good shape outside the oil and gas sector.

The commentary forecasts around 109,000 jobs will be created in Scotland over the next two years, compared with 90,500 in November. However, noting that many jobs created recently have been part time, it said there there is still more slack in the Scottish labour market than in the UK.

The commentary assumes Brent crude will sell for between $55 and $67 per barrel in 2015 and 2016. It fetched $115 per barrel in June and $60.43 yesterday.

The institute now reckons the Scottish economy grew by 2.8 per cent in 2014, compared with a forecast of 2.7 per cent in November.

It noted economists forecast the UK economy will grow by 2.6 per cent this year, in line with 2014, and by 2.3 per cent in 2016.