'Growing risk' of recession in Scotland

The institute has cut its forecasts and said there was a growing risk of recession

A leading economic forecaster has halved its growth forecast for the Scottish economy this year to 0.4%.

The Fraser of Allander Institute has warned the jobs market would also suffer, as a result of the global slowdown and as business finance remains tight.

The Strathclyde University economists said there was a growing risk of recession in Scotland.

Next year, the Fraser of Allander Institute foresees only 0.9% growth.

That is down from a 1.5% increase from its previous forecast published in the summer.

Its autumn report has highlighted weakness in the business and financial services sector, which accounts for a quarter of Scotland's economy, saying it had shrunk by 11% since its pre-recession peak.

It also said there was little comfort in jobs growth, when full-time employment is in decline, and younger people are being hard hit.

'Eurozone contagion'

The institute's Professor Brian Ashcroft said: "Sadly, the weakening in the global economy that we feared in June has come to pass, leading us to halve our forecast for Scottish GDP growth this year.

"Our central forecast is for growth to continue, just. But the avoidance of recession as the crisis in the eurozone deteriorates is becoming less and less likely.

"It is a tragedy that the eurozone crisis, which threatens the well-being of the whole global economy, is worsening when clear policy solutions exist. That they are not being adopted is due to national hubris and policy error on a grand scale."

Lindsay Gardiner, of PwC in Scotland, which sponsored the survey, said that until the Greek problem was resolved, "the medium-term funding markets for banks" were likely to remain frozen.

He added: "The financial services industry is a major driver in Scotland's economic engine, so any slowdown in the pace of growth is concerning.

"A combination of ongoing uncertainty of eurozone contagion, potentially worsening banks' balance sheets, volatility in the global debt markets and continued concern over the level of regulation is having a massive impact on financial results and overall confidence."

Budget call

Scottish Finance Secretary John Swinney said: "The recession in Scotland was both shorter and shallower than that experienced across the UK, and while our economy is forecast to continue to grow into next year and the Scottish labour market continues to outperform the UK as a whole, this report reinforces the urgent need for the Westminster government to deliver an economic 'Plan MacB'.

"The UK government must deliver real action in the areas where Scottish government action is making a difference: increased capital expenditure, improved access to finance for medium and small sized businesses, and the introduction of measures to boost economic confidence and income security."

However Scottish Liberal Democrat leader Willie Rennie said Scottish economy was "extremely fragile".

"This economic forecast again exposes the folly of Plan MacB, so lauded by the SNP," he added.

Scottish Conservative finance spokesman Gavin Brown called on the Scottish government to produce a budget for the economy.

He said: "Their plan to raise income from business rates relies heavily on substantial economic growth. This forecast blows an even bigger hole in the SNP's finances."