Scottish economy teetering with prospect of recession ‘in the balance’

The prospect of Scotland officially entering recession in contrast to the growing UK economy, hangs in the balance, experts have warned.

In a report assessing the state of the economy north of the border, the University of Strathclyde’s Fraser of Allander Institute has produced analysis which shows Scotland’s economy shrank in the final three months of 2016.

The influential think-tank said another quarter’s fall would mean the country had entered a technical recession for the first time since the global downturn and means the economy “remains in a precarious position”.

Fraser of Allander’s forecast of GVA growth for this year, and increases of 1.4 per cent and 1.6 per cent in 2018 and 2019 respectively, are in line with its March outlook.

Although this still continues to lag behind that of the UK as whole, the thinktank said.

Next week’s official gross domestic product figures for the first quarter of 2017 will confirm whether or not the Scottish economy has technically re-entered recession after two consecutive quarters of negative growth.

According to Fraser of Allander, it is “likely to be a close-run thing”.

The thinktank also noted that the slowdown can no longer being simply attributed to Brexit of the downturn in the North Sea energy sector, having now spread across a wider set of industrial sectors.

Activity levels in the manufacturing and construction sectors fell and services did not grow during the final three months of 2016, its report said.

However, it also noted recent business surveys showing a recent pick-up in activity as a sign the nation’s economy has probably avoided a slide into reverse and is on track for growth – in gross value added (GVA) terms – during 2017.

Launching its report into the financial health of the nation, the think-tank adds: “Scotland’s economy seems to be stuck in a cycle of weak growth, declining confidence and poor investment and net export figures.”

It also warns the outlook for household finances looks “grim” due to continuing weak productivity growth and rising inflation.

Families are supporting their spending by running down savings and expanding credit.

Fraser of Allander director Graeme Roy said the scale of the gap between the Scottish economy and that of the UK as a whole was growing.

He said: “On balance, our forecast is that growth will return in 2017, with tentative signs of a more positive outlook for Scotland’s oil and gas sector and improving order books across Scottish businesses.

“In the current climate sentiment can change quickly. Should the upcoming Brexit negotiations go badly, or the UK economy slows down more quickly than anticipated, then Scotland’s economic prospects could take a sharp turn for the worse.

“That being said, a number of sectors should post relatively healthy returns this year. In particular, Scotland’s food and drink and tourism sectors should benefit from the low value of Sterling.”