Our latest Economic Commentary is here. For those that can stand it my podcast is here.
The basic picture continues to be one of weak recovery with a further weakening apparent towards the end of 2011, as the UK economy contracted by 0.2%. Scottish GDP is still -3.3%% below the pre-recession peak nearly four years ago, while the figure for UK GVA is -3.6%. However, while the depth of the recession was greater in the UK, at -7.2%, than in Scotland, -5.9%, the recovery of UK GDP has been slightly faster than in Scotland. The jobs market is depressed with unemployment rising back to that experienced at the trough of recession, and currently at 231,247 or 8.6% and above the UK rate of 8.4%.
There are some indications, though, that growth is beginning to pick up and after a weak first six months growth may pick up towards the end of the year. This for two reasons.
First, the rate of inflation is falling and may give a relative boost to real incomes and so encourage a rise in household demand. But it might not. If the pressing need of households is to pay down debt then a rise in real income could lead to higher savings with little or no impact on household demand.
Secondly, the situation in the Eurozone has eased because of the €130bn second bail-out for Greece, and because of the role the ECB has recently played in acting as de facto lender of last resort. By buying securities from EZ banks the banks have been able to use the increased liquidity to fund some of the debt of the peripheral sovereigns. These developments offer only temporary respite to the EZ balance of payments and debt crisis. But there is still a risk of a disorderly Greek default and exit from the EZ, which will put at risk some of the other sovereigns such as Portugal and Spain. Moreover, the balance of payments financing and adjustment issues have hardly been tackled even if some progress has been made on debt.
Against this background our forecasts are as follows:
Forecasts
- We have revised down our forecast of GDP growth for 2012 to 0.4% from 0.9%.
- But we expect growth to be a little stronger in 2013 at 1.7% instead of 1.6%.
- By 2014 we predict a stronger recovery with growth of 2.6% taking us back to the pre-recession GDP peak by the third quarter. Six years after the start of the recession.
- We expect Scottish growth to continue to be weaker than the UK but growth in the two jurisdictions is now expected to be much closer together, in line with the evidence from the recovery to date.
- For employment, our central forecast is for net jobs to fall by -1.8% in 2011, and by -0.7% in 2012, rising by 1.0% in 2013 and by 1.7% in 2014.
- The number of employee jobs in Scotland is forecast to decline during 2012 by just less than 16,000 jobs. Through 2013 and 2014 we forecast increases in employee jobs in our central forecast, with annual increases of over 23 thousand and 38 thousand respectively.
- There are job increases across all the main sectors.
- However, we forecast a "rebalancing" of employment within the service sectors towards non-public activities as fiscal consolidation continues. Construction employment is forecast to increase in 2013 and 2014 as spending on (private) investment projects returns with renewed confidence in the recovery.
- Unemployment is forecast to continue to rise on both key measures this year.
- On the preferred ILO measure unemployment is predicted to reach 265,250 by the end of this year, or 9.8%. That is a rise of 34 thousand from the level reached at the end of 2011.
- As with our last forecast, we are expecting the unemployment position to improve through 2013, and are now forecasting unemployment at the end of that year of 253,950, 9.3%, falling further to 234,300, 8.8%, by the end of 2014.
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