BY Jeremy Peat, visiting professor at the University of Strathclyde International Public Policy Institute

WHILST wishing all readers a very happy new year, I must (with regret) stress that there are still precious few tidings of comfort and joy emanating from the economic front. The past few years have been disappointing and that trend is set to continue for a good while yet – whatever the dreaded Brexit brings.

In Scotland in 2017 we had a December Budget. We also welcomed onto the economic and fiscal scene the first formal forecasts for our economy from the enhanced, invigorated and much to be welcomed Scottish Fiscal Commission. It is difficult to dissent from its view regarding the outlook for the Scottish economy, as put forward at Budget time. Obviously all economic forecasts are subject to uncertainty – and almost inevitably wrong – but the SFC’s suggestion of growth of GDP of a miserly 0.7 per cent in 2018, the same as anticipated for 2017, rising gently to a still ultra-weak 1.1 per cent by 2022 looks perfectly reasonable.

The SFC forecast is in line with those from other credible institutions. It is deeply disappointing both in absolute terms and as compared to historical precedent, especially prior to the 2008 financial crisis. If the SFC forecast is correct, then Scotland will be experiencing the longest period of year-on-year growth below one per cent for fully 60 years.

This rate of growth, present and projected, is well below the UK rate; and the UK rate now lags most other major economies. Despite Scotland’s relatively low rate of population growth, the same (growth below the UK rate) applies if GDP growth is assessed per person. In per head terms the Scottish growth rate is expected to stay around zero through the year ahead, before picking up to all of a half of one per cent in 2020; not exactly heady days!

Sorry to pour on more bad news, but the view of the Fiscal Commission, and again also other credible commentators, is that ‘real household disposable income is not expected to see any growth until 2020-21’. In other words we face two more years in which average earnings growth is expected to be lower than the rate of inflation. Households should anticipate a further two years, at least, of austerity so far as their budgets are concerned.

Such growth as we can expect will come from the public sector, perhaps alongside a marginal boost to business investment, following declines of late. The budget available to the Scottish Government should be slightly higher in 2018/19 than in the current fiscal year. That is despite the ‘block grant’ from Westminster being down by £200 million, and is achieved thanks to an anticipated increase in income tax revenues of £366m following the changes in tax rates announced the other week.

Clearly all the uncertainties surrounding Brexit and our future relationship with European friends and neighbours help to explain some of this underperformance. The decline in the value of sterling after the Brexit referendum has raised the cost of living and reduced disposable incomes, thereby cutting domestic demand within our economy. To an extent that depreciation may have helped manufacturing exporters, but that is a very minor part of our economy these days. A greater boost may have come from increased numbers of foreign tourists, drawn in by cheap sterling.

So what to do given this tale of gloom? A dramatic U-turn on Brexit would be welcome, but is not going to transpire. So the answer has to be an increase in the capacity and performance of our economy. In sum, to repeat a tale told in this column month after month, productivity has to increase.

The Fiscal Commission notes that "the outlook for productivity is the most challenging aspect of the economic forecasts". Like the Bank of England and the UK’s Office for Budget Responsibility (OBR), the Commission has reduced the expectations for productivity as compared to the story told in recent years. But unlike these UK bodies, who still expect steady recovery in productivity in the years ahead, the Commission anticipates recent trends in Scotland broadly continuing. That is not a pretty expectation when the Fraser Institute has estimated that Scottish productivity, in terms of output per hour, has been falling for seven consecutive quarters.

Achieving improved productivity will be a major challenge and will take time. But it is critical to our future prosperity. We have to aim at improvements across our economy, not just in the glossy new sectors. Rather than falling output per hour we should be aiming for an increase of some two per cent each and every year.

There appear to be three key factors which could help us on the road to success. We need more investment – in infrastructure and from the business sector. We must make best use of existing skills and work to enhance skills across the present and prospective labour force. And we need innovative, ambitious and efficient management across public and private sectors.

The Scottish Government has started the process of increasing public sector capital spend and announced some increases in funding for colleges and our enterprise and skill support system. Now they need to work intensely and closely with key stakeholders in the private sector to determine how to boost investment in that sector, how to best re-invigorate management and how to ensure that the required skills are available at the right places at the right times.

This is all critical if we seek better days in the next decade than we have managed this time around.

Jeremy Peat is a visiting professor at the University of Strathclyde International Public Policy Institute