Warning on economy
Top economist in warning over ‘headwinds’ of Brexit and independence
SCOTTISH growth prospects are bleaker now than at any time since the financial sector-induced crisis of 2008, a leading economist has warned, after official data revealed stagnation in the first quarter.
The figures, published yesterday by the Scottish Government, showed manufacturing output tumbled by 2.6 per cent during the opening three months of this year. Construction output dropped by 1.5 per cent but 0.4 per cent growth in the dominant services sector meant overall Scottish gross domestic product (GDP) in the first quarter was flat, compared with the final three months of last year.
John McLaren, honorary professor at the University of Glasgow’s Adam Smith Business School, warned of the likely dampening impact of the Brexit vote on the economy north of the Border as well as flagging uncertainty around the issue of Scottish independence.
He said: “Potential headwinds dominate the landscape and future prospects for the growth of the Scottish economy are bleaker now than at any time since the finance led crisis in 2008.”
Mr McLaren added: “The most obvious such headwind relates to the impact of the Brexit vote. However, a return to uncertainty over Scotland’s position within the UK further heightens the overall confusion around Scotland’s future. In particular, returning to this issue has implications for the future currency to be used within Scotland and on future tax rates, given the likely adjustment needed towards greater fiscal balance in an independent Scotland.”
The stagnant position in Scotland in the first quarter was significantly worse than even the far below-trend growth of 0.4 per cent in the UK as a whole during this period.
Comparing the year to March with the preceding 12 months, the Scottish economy grew by 1.5 per cent, while the UK as a whole expanded by two per cent. But Scottish GDP in the first quarter was up by only 0.6 per cent on the same period of last year, compared with a corresponding increase of two per cent in the UK as a whole.
Jeremy Peat, visiting professor at Strathclyde University’s International Public Policy Institute, said of the first-quarter Scottish GDP figures: “Growth in the year to the first quarter is remarkably low.”
He noted the Scottish economy looked like it would have been flat at best, comparing the first quarter with the same period of 2015, if it had not been for the boost from construction during part of last year. Major projects such as the Forth Replacement Crossing have boosted the Scottish economy.
Mr Peat cited the onshore impact of the North Sea oil and gas sector’s woes as a major factor in the broader Scottish economic weakness. He noted offshore activity was not included in the Scottish GDP numbers, which might therefore understate the underperformance.
He believed, including offshore activity, there would likely have been a decline in Scottish output.
Mr Peat highlighted the likely damaging impact on investment in Scotland from the UK electorate’s vote on June 23 to leave the European Union.
He said: “The impact of Brexit will inevitably hang over the Scottish economy over the next 12 to 24 months. Whatever happens over a possible [independence] referendum or EU membership continuing, this will limit investment by the corporate sector and [mean] growth continues to be non-existent through 2016 and into 2017.”
He urged the Scottish Government to focus on the economy “at this very difficult time”, concentrating efforts on boosting productivity and restoring confidence, while saying he understood why, for various reasons, political considerations would likely continue to dominate.
Mr Peat said: “I very much wish the [Scottish] Government would focus on what can be done for the economy. If we are now going to be having another referendum, management of the economy is going to be sadly neglected for further quarters, which is disappointing.”
Scottish business minister Paul Wheelhouse said: “We are committed to improve our economic growth, productivity and social inclusion.”
Declaring that he understood the desire to stay in the EU, but noting independence would affect Scotland’s trading relationship with the rest of the UK, Mr Peat said: “There is no best option for Scotland.”
Professor Graeme Roy, director of Strathclyde University’s Fraser of Allander Institute, said the tumble in Scottish manufacturing output was “of greatest concern” in the GDP figures. Manufacturing output in the first quarter was down 5.4 per cent on the same period of 2015 – which Mr Roy noted was the sharpest year-on-year pace of decline since the 2008/09 recession.
But he noted upward revisions to past Scottish GDP figures meant the Scottish economy had expanded in every quarter of 2015.