Growth forecast for 2014 revised down

The institute, in its latest commentary, is sticking with its forecast of 0.9% growth in Scotland this year, having cut its prediction to this level in March from 1.3%.

Forecast growth in 2013 is less than half the 2% rate which Fraser of Allander believes is generally required to prevent a rise in unemployment.

The think-tank is projecting a rise in the unemployment rate in Scotland, on the International Labour Organisation measure, to 8.4% by the end of next year from 7.9% at the close of 2013.

Data published yesterday by the Office for National Statistics put the ILO unemployment rate in Scotland at 7.1% in the February to April period.

Fraser of Allander notes that some recent economic surveys have painted a brighter picture.

However, it highlights the UK Government's fiscal consolidation programme and a weak export performance as key factors behind the weakness of the recovery in Scotland, which has been, and is expected to remain, broadly in line with that in the UK as a whole.

Professor Brian Ashcroft, emeritus professor of economics at Strathclyde University and economics editor of the Fraser of Allander commentary, highlighted his expectation that recovery would remain weak.

He said: "My concern is I just can't see where the sources are for quite a strong recovery going forward."

Mr Ashcroft highlighted the major drag on economic output from huge fiscal consolidation due to be implemented between now and 2017/18.

Citing figures from the Institute for Fiscal Studies, Mr Ashcroft said that, at the start of the current 2013/14 financial year, about 60% of total annual fiscal consolidation of about £143 billion expected to be in place by 2017/18 was "still to come".

In its overview of the Scottish economy, Fraser of Allander says: "Clearer signs of a recovery are now emerging within the Scottish economy. This is to be welcomed.

"But, despite the recent good survey evidence, the recovery is far weaker than would be expected five years after a recession, even a recession generated by a banking crisis."

It adds: "The reason for this stagnation and anaemic recovery is two-fold: the UK government's fiscal consolidation programme and a weak export performance reflecting both supply-side structural problems in the UK and Scottish economies as well as weak global demand."

Paul Brewer, senior partner at accountancy firm and Fraser of Allander commentary sponsor PricewaterhouseCoopers in Edinburgh, attempted to highlight positives on the economic front.

He said: "Looking ahead now, there is a much higher level of confidence growth will continue."

However, he emphasised that it would take a long time for growth to "gather pace".

Mr Brewer said: "I think the foundation is there. We have actually now had a longer period of relatively slow growth, which provides the foundations."

Fraser of Allander has raised its forecast of growth in Scotland in 2015 from 1.9% to 2.1%. And, although it predicts significant rises in ILO unemployment in Scotland, it has reduced its forecast of the end-2014 rate to 8.4%, from its projection of 8.6% in its March commentary.

Fraser of Allander expects ILO unemployment to stand at 213,250 or 7.9% at the end of this year, rising to 228,000 or 8.4% at the close of 2014. It then projects a fall to 189,350 or 7% by the end of 2015.

In March, it had forecast the end-2015 ILO unemployment rate at 7.7%.

But Fraser of Allander declares: "We also see many workers leaving the labour market so that the measured unemployment rate becomes a less and less accurate measure of the extent of labour reserves and the underlying misery of job loss."

Yesterday's ONS figures showed 194,000 people were unemployed in Scotland in the February to April period, down 6000 on the preceding three months.

Fraser of Allander highlights strong growth in business services in Scotland. But it notes a sharp fall in financial services activity.