June 2012

Fraser of Allander's Economic Commentary focuses on Eurozone

The latest Economic Commentary from the Fraser of Allander Institute, sponsored by PricewaterhouseCoopers, focuses on the Eurozone and warns that a Eurozone collapse or even a Greek exit from the Eurozone threatens to halt and even reverse an already lacklustre Scottish recovery.

As Greece faces continued austerity following last weekend's election, Scotland's potential exposure to a Greek euro exit, or even the complete disintegration of the eurozone, is becoming clearer. Analysis in the Economic Commentary reveals that although the trading exposure to Greece is low – only around 0.3% of all Scottish exports are Athens bound - a further deterioration in the Greek economy could have far reaching consequences.

The analysis indicates that if Greece is forced to leave the eurozone, the impact could have the effect of shrinking Scottish GDP by around 1.2% and pushing the region well into recession. If the eurozone itself were to collapse - a much less likely scenario – the impact on the Scottish economy would be substantial, with GDP falling back by around 5.2% to the worst levels of the global financial crisis

Brian Ashcroft, Professor of Economics at Strathclyde, said, "Our analysis suggests that a Greek exit from the eurozone would provide a sizable shock to the Scottish economy. But the breakup of the euro would lead to a loss of output and jobs in Scotland comparable to the impact of the Great Recession of 2008 to 2009."

Morven Campbell, risk assurance partner at PwC in Scotland, commented, "Scottish businesses must understand and prepare for all of the potential Eurozone scenarios. This means stress testing all aspects of their business, from treasury to operations and exports to personnel, identifying vulnerable areas and developing contingency and mitigation plans to minimise any likely impact.

"Businesses also need to act on the fact, even in the face of the crisis, that there are still significant growth and export opportunities outside Europe, particularly in the emerging markets for Scottish products and services."

The commentary notes that in the Scottish labour marketing, jobs are being created again. However, this is in the area of part-time and temporary jobs, while full-time jobs are falling.

Professor Ashcroft said, "The positive signs from surveys earlier in the year that the Scottish recovery was picking up have been undermined by the latest survey evidence. We appear to be condemned to a continuing period of low growth as fiscal austerity continues and the clouds over the Eurozone darken."

Paul Brewer, senior partner at PwC in Edinburgh, added, "Over the last few months we have seen some strong Scottish business performances in terms of growth, markets and products. However, this is far from widespread with manufacturing, construction and retail sectors continuing to suffer from lack of confidence, growth and capital.

"While the economic outlook appears almost as glum as the recent summer's weather, with little or no GDP growth to lift us out of double-dip territory, there is a glimmer of hope. The Government's injection of £80bn to, 'support the flow of credit to where it is needed in the real economy' will improve the access to finance for investment and business growth. But the real question is whether businesses will show the confidence to embrace this opportunity. It remains to be seen if this will be enough to navigate the choppy economic waters and raise business confidence."

The latest commentary in full is available here.

In This Issue:

 

New Accounting & Finance rankings

GEM report suggests significant entrepreneurial growth in Scotland

Sir Tom Hunter launches Enlightenment lecture series

Fellowship award 'first' for Management professor

Marketing professor leads World Bank's discussion on South-South Foreign Direct

Management academic organised raw material and global energy conference

Second Strathclyde 'Middle East Marketing Academia Meets Practice' Roundtable Workshop

Guest lectures at Strathclyde Business School

Deloitte 2012 Prize for MDP 1

Economics doctoral students get results

IBML student's success in Mexico exchange

Media mentions

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