A leading economic think-tank has slashed its growth forecasts for the Scottish economy despite a boost in output in the third quarter of 2012.
The latest Fraser of Allander (FoA) report found evidence of “genuine growth” last autumn driven by an uptick in both manufacturing and the all-important services sector, which makes up 70% of Scotland’s economy.
However, demand weakened again in the fourth quarter, and FoA said the prospects for this year were uncertain.
The institute’s GDP growth forecast for Scotland for 2013 which was only made in November was yesterday revised down 0.4% to 0.9%.
FoA also cut its 2.2% growth prediction for 2014 to 1.7%, and said it expected a 1.9% uplift in 2015 the first time it has forecast so far ahead.
Brian Ashcroft, emeritus professor of economics at Strathclyde University, where FoA is based, said the recovery would be long and slow.
He said the UK Government austerity programme had led to Moody’s recent downgrade of the country’s AAA credit rating and a massive stimulus in the region of £50 billion, instead of further prolonged cuts, was needed to kick-start growth.
He said: “We expect to see some modest growth in the Scottish economy this year.
“However, growth should be a lot higher than it is given we are now five years on from the start of the great recession.
“Household demand, net trade and investment demand remain weak while fiscal austerity continues, with 68% of planned benefit cuts and 78% of current departmental spending cuts still to come after April this year.”
The FoA said it expected a net uplift in jobs in Scotland of 9,400 this year, rising to 19,150 next year and 31,800 in 2015.
However, it expected unemployment to reach 218,300 by the end of this year and 228,500 in 2014, before improving to 204,100 in three years’ time.
The FoA analysis pointed to continuing recovery in the business and financial services sectors growth at 3.9% in the period was double the UK as a whole while the focus on infrastructure spend in Scotland gave a small lift to a construction sector which remains severely depressed.
However, the report found the main components of demand in the economy north of the border private investment, household demand, net trade and Government spending remained weak.
Paul Brewer, a senior partner with report sponsors PwC, said: “Aside from the notable exception of the oil and gas sector, overall investment levels still weak.
“The Chancellor needs to look at all opportunities to stimulate investment and focus on the drivers of healthy, sustainable growth in the Scottish and UK economy.”
business@thecourier.co.uk