As 2013 looms, the traditional Hogmanay pastime of looking to the New Year may be a more pleasant experience as Scotland’s lacklustre GDP performance begins to look just a little brighter.
According to the latest PricewaterhouseCoopers-sponsored Economic Commentary from the Fraser of Allander Institute, Scotland could even outperform the UK in 2013, with GDP growth of 1.3% as compared with a projected UK average of 1.1%.
However, an even gloomier than expected 2012 means that Scotland could see out the old year with negative GDP growth of -0.1% - well below the 0.4% real growth forecast back in June.
Professor of Economics, Brian Ashcroft, said: “With GDP falling in the first half of the year, it is likely that Scotland will suffer a fall in GDP in 2012. In a month when the IMF published research indicating that fiscal austerity has had a much greater effect on output than anticipated, we must look forward to further fiscal retrenchment even though both private domestic and foreign demand continues to be weak."
By the end of the second quarter Scottish GVA stood at -4.4%% below the pre-recession peak four years ago. In contrast, the figure for UK GVA is -3.8%. This is despite the fact that the depth of the recession was a little greater in the UK, at -6.3%, than in Scotland, -5.8%.
Paul Brewer, senior partner at PwC in Edinburgh, commented: “While the overall picture is one of stagnation, the Scottish Government has been using the levers available to it to stimulate growth. If the focus on infrastructure spending, such as the new Forth Crossing, can strengthen through 2013 and beyond the outlook for construction will be more positive.
“Scotland’s latest insolvency data also offers a glimmer of light. This showed the lowest quarterly figure for corporates since Q2 2011, with personal insolvencies also reporting a drop, almost 25% down on Q3 last year which is partly due to an increased consumer focus on repaying debt. While we expect this downward trend to continue into the new year, what happens after that depends on how quickly businesses can address the challenges facing their balance sheets.
“With consumer spending remaining weak there are continued pressures on the retail and hospitality sectors in particular, as we have seen recently with Comet. The likelihood is that in the early part of 2013 we could see more restructuring and closures as these firms confront the issues of accessing funding, weak demand, consumer confidence and rising costs.”
In the Scottish labour market jobs are now being lost again and unemployment is rising, and with Scotland unlikely to benefit to the same extent as other UK regions from the ‘Olympic bounce’, job prospects remain under a cloud.
However evidence that labour productivity may have risen in Scotland, or deteriorated much less, while falling sharply in the UK is perhaps a silver lining that may yet bolster growth to a limited extent in the face of continuing UK fiscal consolidation, low Eurozone growth, and a general weakness in global demand for goods and services.
The Commentary shows that since the recession began four years ago labour demand has fallen by much less in the UK than output, suggesting a marked fall in productivity. In Scotland, in contrast, labour demand appears to have fallen by more than output over the period. While this is bad news for unemployment, higher productivity may be good news for future Scottish growth.
Professor Ashcroft concluded: “We shall see growth return but it will continue to be lacklustre for some time. Scotland may gain some competitive advantage from our apparently better productivity performance than the UK. But without a strong upturn in demand the effect on growth of improved supply-side efficiency is like pushing on a string. ”
The full commentary is available here.