Economic forecaster in recession warning

The report said growth would slow further in part because of a worsening demand for Scottish exports

A leading economic forecaster has warned that Scotland may fail to avoid a recession in the coming months as the economy continues to slow down.

The University of Strathclyde's Fraser of Allander Institute has revised down its growth forecast for 2016 to 1.4%, whereas in March it expected 1.9%.

It has also reduced its forecast for 2017 from 2.2% to 1.9%.

It said growth would slow further because of slow investment growth and a worsening demand for Scottish exports.

The report also cited the continuing effects of the fall in the price of oil on household incomes and spending, and a general slowing in household spending.

Prof Brian Ashcroft, from the Fraser of Allander Institute, said: "The Scottish economy came within a hair's breadth of recession last year and, with little improvement recently, may fail to avoid a recession in the coming months."

The quarterly report adds further weight to recent evidence that the Scottish economy is slowing.

Last week, the EY Scottish Item Club said the economy was slowing up more than previously expected.

It estimated growth of only 1.2% for 2016, whereas last December it expected 1.9%.

Scotland's chief economist also warned earlier this month that the economy was set to continue to grow slowly.

The Fraser of Allander Institute said Scotland was now relying solely on the service sector for growth as the contribution of construction, driven by infrastructure spending, had now peaked - albeit at a high level of activity.

However, it pointed out that even though the service sector registered growth of 0.3% in the final quarter of last year, UK services grew three times faster.

It found financial services were "especially weak", while weakness in business services growth had been exacerbated by the effects of the fall in the price of oil.

The forecaster also said "manufacturing growth can only be described as weak".

The report also gave a bleak assessment of the prospects for Scotland's jobs market.

It has revised down its forecast for employee jobs this year. It now estimates that the Scottish economy will add 28,650 jobs in 2016, down by about 8,000 from its March forecast.

The institute also revised up its predictions for unemployment - in both levels and rates of joblessness - as a result of the "deterioration in many labour market indicators over the last four months, and the revision downwards of growth performance of Scotland in 2016".

'Unnecessary burden'

The report also warned that future Scottish economic growth could be hit if the UK voted to leave the European Union.

It said that could lead to a loss of trade, inward investment and finance which would worsen already weak productivity growth.

Prof Ashcroft said: "At a time when there is increasing policy concern about Scotland's productivity and growth performance, a vote to leave the EU would place an unnecessary burden on Scottish companies and economic policy."

Paul Brewer, from report sponsors PwC in Scotland, said: "While Scotland has edged away from recession in the fourth quarter, the data suggest that for some sectors Scotland is flirting with recession and, in areas of growth, is struggling to grow at a pace comparable to the rest of the UK.

"This has been a difficult trading environment for businesses to operate in and for investors to plan between the oil price, the upcoming European referendum uncertainties and the general tightening of belts in many sectors."

'Real challenges'

Responding to the report, Scotland's economy secretary, Keith Brown, said: "While there are real challenges, including subdued global demand and the impact of the oil price on our offshore industry, Scotland's economy has proven resilient and continued to grow - with recent independent forecasts suggesting further growth this year and next.

"Across the world, people are still choosing Scotland as a good place to do business, with record inward investment in 2015 - putting us ahead of all other parts of the UK outside London.

"There has also been encouraging news from BP, with more than 500 jobs set to be created in the North Sea oil and gas industry. And the latest Bank of Scotland PMI indicated strong growth in new business in our private sector.

"But to build on that position we will maintain a clear focus on creating a competitive business environment in which companies can flourish, creating and protecting jobs and stimulating growth."