Fraser of Allander report: strengthening recovery threatened by imbalances
Scottish economic recovery is accelerating with forecasted growth of 2.3% for 2014 – 0.5% more than predicted just four months ago.
However, weaknesses in both the Scottish and UK economies could still threaten future growth according to the latest Economic Commentary from Strathclyde Business School's Fraser of Allander Institute, sponsored by PricewaterhouseCoopers (PwC).
The Economic Commentary forecasts that the Scottish economy will grow by 2.3% in 2014, up from the October forecast of 1.7%, with estimated growth for 2015 up 0.2% to 2.3%.
The upbeat forecasts reflect higher than expected household spending, a pick-up on investment, improving trade conditions and increasingly optimistic business surveys.
According to the Commentary, growth is currently being driven by three key factors: household consumption; activity in the service sector; and part-time and self-employment.
In order to sustain growth over the longer term, an increase in investment and net exports as well as manufacturing and construction activity is needed. More full-time jobs will also need to be created.
Brian Ashcroft, Emeritus Professor of Economics, believes that an increasingly unbalanced recovery across the regions and nations of the UK could hinder future growth. He said, "After six years since the start of the Great Recession we are now witnessing a stronger recovery, although this one is weaker than almost all previous recoveries. While there is room for considerable optimism, the continuing imbalances in both the Scottish and UK economies means the future path of the recovery is by no means certain.
"In the light of continuing weak investment and rising UK regional inequality in growth and income per head, the Chancellor should use his forthcoming Budget to introduce a programme of private sector investment incentives, such as accelerated depreciation, with differential regional incentives, to reflect specific regional challenges.
"Academic evidence on the impact of regional policy in the 1960s shows that it works best when the national economy is recovering and firms are thinking about investing. So now would be the right time."
Paul Brewer, senior office partner, PwC in Edinburgh said, "We need stronger investment to underpin a sustained recovery. Investment is contributing more to growth but needs to accelerate, and the weak performance of the Scottish construction industry in the last quarter is disappointing.
"We'd like to see this week's UK Budget focus on stimulating both domestic and inward investment. This is the right time for The Scottish Government to step up the pace here too, sustaining its own investment programme, making the most of EU investment support and by supporting our cities develop as great places to invest and do business by investing in their infrastructure and business locations."
As Scotland's leading publication on the Scottish economy, the Economic Commentary has published policy articles by the Yes Scotland and Better Together campaigns, setting out their respective economic cases for and against independence.
The Economic Commentary, which is neutral on the issues, offered both camps the opportunity to stimulate debate around the ‘six tests’ as outlined in Professor Andrew Goudie's 2013 book; Scotland's Future; the economics of constitutional change.
Reflecting on the Commentary's new policy section, Paul Brewer, senior partner, PwC in Edinburgh said, "This September, the people of Scotland will be asked to make the decision on whether or not Scotland should be an independent country.
We believe transparency, openness and wide-ranging consultation on the issues will help individuals reach informed conclusions and businesses understand what it means for them.
"We welcome the inclusion of this new policy section which has given both campaigns the opportunity to state their respective cases on an issue vital to Scotland's economy and its people."
The Commentary also includes articles on: a diverse recovery across the European Union and its implications for UK macroeconomic stability (and the Bank of England’s use of its 'macro-prudential policy toolbox') – Julia Darby (University of Strathclyde); Scotland's competitiveness in the EU (economists from BAKBASEL, a Swiss-based, private economics research institute); and a first-ever analysis of Employee Owned Businesses (EBOs) in Scotland (Ross Brown and others, University of St. Andrews and Edinburgh Napier University).
