A leading economic think tank has revised down its forecast for growth in the Scottish economy this year and labelled the UK-wide austerity programme a “serious mistake”.
The Fraser of Allander Institute at the University of Strathclyde had predicted growth of 0.9% in 2012, but in its latest economic overview it cut that forecast to just 0.4%.
However, the institute said there were tentative signs of recovery and revised upwards its prediction for Scottish GDP (gross domestic product) next year from 1.6% growth to 1.7%, and forecast that output would return to pre-recessionary levels by the third quarter of 2014 a full six years after the downturn first began.
The institute also gave its view of the labour market, which it said was clearly weaker than in the wider UK and now sat at 3.9% below the pre-downturn peak.
It predicted the situation would worsen throughout 2012 with unemployment reaching 265,250 by the year-end a deterioration of 34,000 to a position where almost one-in-10 of working age people inScotland are unemployed.
Brian Ashcroft, professor of economics at the university, believes the austerity measures adopted by the Westminster Government are a mistake.
He said: ”The UK economy is labouring under a programme of fiscal austerity which is slowing growth and which may ultimately prove to be self-defeating.
”With unemployment in the UK rising towards three million and a quarter of a million in Scotland, a generation of young persons’ job prospects are under threat. This austerity policy is a serious economic policy mistake that will arguably be remembered for generations to come.”
Professor Ashcroft said the stability of the eurozone remained key to future growth in Scotland.
He said: ”Growth in the Scottish economy continues to slow down, employment is falling and unemployment is rising at a faster rate than in the UK.
”Yet, with falling inflation there are some signs of a recovery emerging in the second half of this year and the hope that the problems of the eurozone, if not solved, are less likely to plunge the world economy into recession than when we last reported.”
Paul Brewer, a senior partner at PwC in Edinburgh, which supports the FAI’s economic commentary report, added: ”As we continue to bump along the bottom, businesses and households are continuing to adjust their expectations to account for this extended journey to growth.
”When a business is looking to expand, availability of finance can make the difference between success and failure. It is concerning for private companies that credit remains tight.
”Banks are also seeing less demand for finance to drive growth. Recent research revealed a significantly reduced appetite for risk-taking by Scottish firms during the recession may provide one explanation for this.”
The report stated that, while the toughest year of budget reduction had passed for the public sector, it would be increasingly hard to deliver the incremental cuts outlined in the Scottish budget over the next two years.